Across the United States, home prices are soaring, while the lack of properties for sale has resulted in a fierce rivalry for buyers. It has become increasingly difficult for middle-class Americans to achieve their ambition of owning a home because of the combination of these developments.
According to a recent study by the National Association of Realtors (NAR), the number of homes for sale that is affordable for families earning between $75,000 and $100,000 annually has dropped from about 656,000 before the COVID-19 outbreak to about 250,000 now.
The number of households in this income range has increased from 24 in 2019 to around 65 as of this listing.
As a prospective buyer, it’s also no longer enough to have a down payment and a pre-approved mortgage on hand. Real estate firm Redfin estimates that in 2021, nearly 30% of homes would be purchased with all-cash offers, up from roughly 25% in 2020.
Moreover, half of the transactions in some places, such as West Palm Beach and Naples, Florida, were made in cash. Contingencies, including finance and inspections, are being demanded by sellers.
According to Zillow, there are currently nearly 500 communities in the United States where the average cost of a home is more than $1 million.
According to Redfin’s chief economist Daryl Fairweather, “the middle-class ideal of homeownership has been dwindling away.” There’s a “significance” to owning property in the United States, he said.
The third year of the pandemic real estate market has been termed as “very stressful” and “ultra-competitive” by experts to CBS MoneyWatch. In 2021, the existing home median sale price grew by 16 percent to approximately $360,000, according to the National Association of Realtors.
There aren’t enough houses for everyone!
The market has grown even more difficult for homebuyers to navigate compared to a year ago. First-time homebuyers are competing against investors and current homeowners who have built up equity over the past two years of rising property prices and hence have more money to spend on housing.
According to Fairweather, “it is worse, believe it or not—it is objectively worse.” We don’t have enough houses for everyone who wants to buy them, says the economist.
Working from home has allowed white-collar workers to transfer from expensive regions to cities with a reduced cost of living, which has made housing more competitive for locals in the markets where they live.
According to Redfin, out-of-town purchasers often have 30% more money to spend on a home than inhabitants of the area.
In the past, only major coastal towns like San Francisco and New York City had to deal with the problem of scarce, expensive, and scarce housing, but now smaller regional cities like Nashville, Tennessee, and Austin, Texas, are also experiencing it.
It’s possible for middle-class homebuyers to afford a home now, but they’ll be in the most affordable cities, according to Fairweather.
According to a recent survey by the National Association of Realtors, some regions of the United States have more properties for middle-income buyers than the national average. Atlanta, for example, or smaller communities like Deltona, Florida, are good examples of this.
Increasing the number of roommates
Nadia Evangelou, senior economist and director of NAR’s forecasting, said the squeeze on middle-class purchasers is troubling for several reasons. A homeowner’s net worth is approximately 40 times bigger than that of a renter, making homeownership one of the best ways to grow wealth.
First-time homebuyers face a “far greater wealth difference” than current owners, she predicted. Americans in the middle class “Because of the high level of competition, it is impossible to purchase a house. There is a lack of entry-level housing in the market.”
Because of these difficulties, some first-time homebuyers are turning to the option of sharing a house with a roommate in order to increase their purchasing power.
In the early days of the epidemic, Amanda Schneider, a 30-year-old lab technician, teamed up with two others to buy a property in Gallatin, Tennessee, for $315,000. She admitted that it could have been difficult for her to buy a house on her own, given her financial situation.
Schneider told CBS MoneyWatch that the property’s worth has increased by 35 percent since they purchased it in 2020. “We feel very lucky to get the house we did,” Schneider said. “Buying a home right now is exceedingly challenging for other families and groups.”
Realtor Hope Dyer, who is based in Nashville, said that buyers are also tossing in extras to make their offers stand out.
“One of our agents had multiple offers on a home over the weekend. It was decided that $1,000 in Bitcoin and a seven-night vacation in the prospective buyer’s timeshare would be a good deal for the buyer “she asserted.
Dyer observed that the offer had been accepted.
All-cash offers have increased in recent months.
Experts say cash offers are becoming more prevalent since they’re perceived as more powerful bids by sellers. When it comes to financing, for example, it’s thought that there’s less danger that the deal won’t go through.
Although many purchasers lack the financial means to make a cash bid, “proptech” companies are stepping in to help middle-class homebuyers compete with those with more resources in the market.
John Wai, an accountant who recently became an empty-nester, had this thought when he downsized his home. After doing some research on how to make an all-cash offer more appealing to sellers, he discovered Flyhomes, a company that lends money to consumers so they can do so.
He and his wife had no problem making an all-cash bid for a home in California’s Woodland even though they hadn’t yet sold their previous residence in San Francisco.
In the absence of an all-cash offer, Wai, 51, and his family would not have been able to purchase the house.
Tushar Garg, CEO, and co-founder of Flyhomes says the company’s goal is to “make every buyer a cash buyer” by providing loans and serving as an agent for both buyers and sellers. He claimed that all-cash proposals lessen the seller’s risk while giving a higher premium for the bidder.
If a seller refuses to accept conditions, it makes it difficult for buyers who need to sell their present house in order to buy a new one, according to Garg. It enables folks who haven’t been able to build equity through homeownership a leg up in the marketplace.
A small number of buyers have been able to acquire real estate with cash in the past, according to him. It is now impossible to enter the market with just 5%, 10%, or 20% of your money invested.
Mortgage rates are rising.
Although many people are struggling to buy homes, analysts believe there will be some respite in store later this year. Because of rising mortgage rates, some would-be buyers may conclude they can’t afford to buy a home right now.
Mortgage rates for 30-year fixed-rate loans have risen from 2.8% to 3.9% over the past year, according to the Federal Reserve.
Evangelou of the National Association of Realtors expects additional houses to enter the market this spring.
The housing development is increasing, and supply chain concerns may be alleviated later this year, which would help with homebuilding because some parts and materials are currently difficult to get by.
As mortgage rates rise, “we expect more homes to come on the market, which will lead to a slower pace of homebuying in 2022,” she said.