This has created a fierce competition for buyers looking to purchase a property. This confluence has made homeownership a reality for many Americans who cannot afford it. They are more inclined to buy homes from higher-income buyers, who have a smaller selection.
There are currently only 250,000 homes available nationwide that are affordable for families earning between $75,000 to $100,000 annually. This is a drastic drop from the approximately 656,000 homes available prior to the COVID-19 pandemic. A recent analysis done by the National Association of Realtors found.
This means that there are now 65 households within the income bracket for one listing. That’s up from 24 households in 2019.
It’s not enough that a potential buyer comes prepared with a downpayment or pre-approved mortgage. According to Redfin, 30% of homes were purchased with all-cash offers by 2021. This is up from 25% in 2020. More than 50% of all-cash purchases were made in some cities like West Palm Beach, Florida and Naples, Florida. Sellers demand that buyers waive contingencies such as financing or inspections.
Another indicator of times changing is the fact that almost 500 American cities now have homes for less than $1 million. According to Zillow.
Redfin chief economist Daryl Fairweather stated that the dream of homeownership for the middle class has been “fading away.” CBS MoneyWatch was also informed by Fairweather. He said that owning a house in the U.S. is a sign of the “upper class” now.
Welcome to year three in the pandemic realty market. Experts described it to CBS MoneyWatch to be “deeply stressful” as well as “extremely competitive.” This comes after 2021’s heated real estate market, which saw the median home sale price rise by 16% to nearly $360,000 , to NAR.
There are not enough homes
The market is more difficult to navigate than it was a year ago. The inventory has decreased, and first-time homebuyers now face investors and homeowners who have built equity over the past two years and have more money to invest in housing.
Fairweather stated, “It’s worse. Believe it or not. It is objectively worse.” Fairweather stated, “There are not enough homes for everyone who wishes to buy them.”
White-collar workers have been able to move from high-priced areas to more affordable cities, making it easier for them to find housing. Redfin’s recent report found that out-of-town buyers often have 30% more money to buy a home than residents.
Scarce, costly, and scarce housing was once the norm in large coastal cities like San Francisco or New York. But that trend has now spread to smaller cities such as Nashville, Tennessee and Austin, Texas.
Fairweather stated, “There are middle-class homebuyers who can afford to buy a home right now, but they will not be in the most affordable places.”
According to a recent analysis by the National Association of Realtors, some areas of the United States have more homes available for middle-income buyers than others. These homes can be found in large cities like Atlanta or Deltona, Florida.
Adding roomies
Nadia Evangelou is senior economist at NAR and director of forecasting. The primary method of building wealth is homeownership, with homeowners often having a net worth 40 times higher than renters.
She said that the wealth gap between first-time homebuyers, and current homebuyers could grow even larger. Because of the high level of competition, middle-income Americans cannot buy a house. It is difficult to find affordable homes for entry-level buyers.
Some first-time homebuyers resort to adding roommates to pool their resources to buy a property. Amanda Schneider, a 30-year old lab technician, bought a house in Gallatin (Tennessee) for $315,000 during the initial days of the pandemic. It might have been difficult for her to purchase a home by herself, she said.
Schneider said that they feel extremely fortunate to have purchased the house they did. He also noted that the property’s current value has increased 35% since the time it was bought in 2020. It’s very difficult for other families or groups to buy a home right at the moment.
Hope Dyer, a Nashville realtor, says that buyers are adding extras to make their offer stand out.
“This weekend, one our agents found a house with multiple offers. She said that a potential buyer had a timeshare they didn’t use so they offered a 7-night vacation in their timeshare and $1,000 in Bitcoin.
Dyer pointed out that this offer was accepted.
All-cash Offers on the Rise
Experts say cash offers are becoming more popular as they’re perceived by sellers to be stronger bids. For example, there is less chance that the deal will fall through due to financing problems.
However, most buyers don’t have the financial means to make a cash deal. This is why “proptech” or property tech businesses are helping middle-income house hunters compete with those who have more money.
John Wai was intrigued by the idea and decided to move into a smaller house after becoming an empty nester. Flyhomes provides customers with bridge loans so that they can make all-cash offers.
Wai stated that he and his wife were able to make an all-cash deal when they found a Woodland home they liked, even though their home in San Francisco had not sold.
Wai, 51, stated that without the all-cash offer, the house wouldn’t be ours.
Flyhomes is a loan-based company that acts as an agent for buyers and sellers. It was founded by Tushar Garg as CEO and cofounder. He said that all-cash offers lower the risk for sellers and offer potential buyers a better deal.
This helps buyers who are looking to sell their home in order to purchase their next property. Sellers don’t like to accept contingencies. It also gives people who have not been able build up equity through homeownership a competitive advantage.
He stated that cash has always been the king of real estate. However, it was only available to a select group of buyers. TToday, “You cannot even get in the market with 5% or 10% down.”
Rising mortgage rates
Economists believe that despite the difficulties many are having with home purchasing, there may be some relief later in the year. One, rising mortgage rates means that some buyers might not be able to afford to buy a home right now.
According to Freddie Mac, a 30-year mortgage now averages 3.9%, compared to 2.8% a year ago.
Evangelou, NAR, stated that more properties will be on the market in spring. The pace of home construction is increasing and supply-chain problems may lessen later in the year. This would be a boon for home-building as some parts and supplies are difficult to find at the moment.
She noted that “we expect more homes to be on the market” and that rising mortgage rates will cause home buying to slow down in 2022, compared to 2021.
