How Do People Afford Houses In Today’s Market? 5 Valuable Insights
If you’ve been paying attention to the real estate industry recently, you’ve probably noticed a common theme in the headlines: Home prices have reached historic highs. In fact, median home prices in the United States have increased $100,000 (more than 30%!) since the beginning of the COVID pandemic, according to data from the U.S. Census Bureau and US Department of Housing and Urban Development. That startling figure has sparked a big question among renters dreaming of becoming homeowners: How do people afford houses in today’s market?
It’s a fair question, especially when you consider the overall historical context. For example:
The average home price has increased 88% in the last 10 years.
The average home price has increased 125% in the last two decades.
The last time the average home price was less than $100,000 was back in 1987.
The median home price today is well over $400,000.
These are alarming real estate trends, and they’re something we’re trying to combat by practicing the values of New Localism, which guides us in making thoughtful decisions for the Pittsburgh community while helping people pursue the American Dream through homeownership.
In the meantime, that big question remains: How do people afford houses in today’s market?
How People Afford Homes in Today’s Real Estate Market
Before we unpack this question, let’s get one of the obvious answers out of the way: There are some people in this country who earn plenty of money every year through their annual salary and investments.
These individuals will rarely, if ever, struggle to buy a home of their choice.
For the rest of us, however, we have to save and plan and strategize to become homeowners. With that in mind, here are a few facts and strategies that have been beneficial to homebuyers recently:
1. Rates were at historic lows only a few months ago. Know anyone who bought a home about a year ago? There’s a chance they benefited from extremely low mortgage rates. Rates had been dropping steadily since 2018, and they bottomed out between 2020 and 2021, with rates even dipping below 3% at the end of 2020.
That helped give borrowers some extra buying power.
Even if someone had their eyes set on a home going at above-average prices, that ultra-low rate would mean lower monthly payments that could potentially make the above-average home relatively affordable.
Unfortunately, those historically low rates are gone now, at least temporarily. Today, you’ll likely see rates somewhere between 5%-6% if you have good credit, and they could tick upward from there.
2. Current homeowners still have plenty of buying power. If you’re renting, the idea of becoming a homeowner can seem overwhelming.
But if you’re already a homeowner, you have a valuable asset you can leverage in the purchase of a new home.
That gives you extra buying power and makes buying a new home much easier than someone who lacks similar assets.
3. Many of today’s homes aren’t bought by people; they’re purchased by corporations. Yes, you read that correctly: Many of today’s homes are bought by corporations and iBuyers to be flipped and rented for a profit.
This practice is helping to raise home prices and rents even higher, and it’s notoriously shifting the US into a renter’s market, which is a direct threat to the middle class as we know it.
But back to the matter at hand: Many of these companies benefit from deep cash reserves and valuable assets they can borrow against, making them much more competitive buyers than your typical American family.
4. Many programs are still available to help first-time homebuyers (and homebuyers in general). Yes, houses are expensive. But that doesn’t necessarily mean they’re not affordable. Many different programs and mortgages are available to help buyers.
A few examples outside of your typical conventional mortgage:
FHA Mortgages - These loans from the Federal Housing Administration are great for DIYers who don’t have a ton of cash or who have low credit scores. About 46% of first-time home buyers leverage FHA mortgages.
VA Mortgages - These mortgages are intended for military families. The rates are competitive, and the down payment is often as little as $0!
First-Time Homebuyer Programs - You can find these in a variety of places from a variety of sources, but they’re generally built on the same idea: Help people within a certain credit range and income level get into their own home. Allegheny County, for example, occasionally offers a low-interest, 30-year, fixed-rate mortgage through the Single-Family Mortgage Revenue Bond Program.
As they say, cash is a commodity. If you know where to look, you can still find resources to help you become a homeowner. Contact us to learn more!
5. Some people don’t have a lot of choices. Some people are all but forced to buy a home for work and other major life events.
In fact, we see this quite a bit in the Pittsburgh market, where major companies and high-paying employers like PNC, UPMC, Google, and Uber attract talent from around the country.
Those individuals need a place to live once they get here, and we know many local real estate agents who compete to serve these individuals in extra need of assistance (since many of them buy their home before ever seeing it in person).
It’s a tough situation to be in, but it’s something that’s grown more and more common in today’s workforce.
Contact New Local Realty for Assistance in Buying A Home
At New Local Realty, we’ve built our reputation on the theories of New Localism, a practice of building communities without disenfranchising the people who already live in them.
By helping people source high-quality, affordable homes, we’re helping a new generation of homeowners build long-term wealth for themselves and their families.
With our passionate team of real estate professionals, we leverage decades of industry experience to offer the best prices in the best places through a collection of unique resources.
If you’d like to become a Pittsburgh homeowner, contact us! We’d love to talk through your options and unique opportunities.
