House prices are rising in the United States, while the shortage of homes for sale has led to brutal competition for those in the market to buy a property. This confluence of trends has taken the dream of home ownership far beyond the means of middle-class Americans, who are increasingly facing higher-income buyers for a smaller group of homes. .
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Across the country, there are only about 250,000 homes currently for sale that are considered affordable for households with annual incomes of between $ 75,000 and $ 100,000, a sharp decline from the approximately 656,000 homes available before COVID-19[feminine] pandemic, found a recent analysis by the National Association of Realtors (NAR).
This means that there are now about 65 households in this income bracket for a list, compared to the 24 households in 2019.
In many cases, it is not enough for a potential buyer to be prepared with a down payment and a previously approved mortgage. About 30% of homes were bought with fully cash deals in 2021, up from 25% in 2020, according to real estate company Redfin. In some cities, such as West Palm Beach and Naples, Florida, more than 50% of purchases were offered in full cash. Sellers are demanding that buyers waive contingencies, even for financing and inspections.
Another sign of the times: The U.S. now has nearly 500 cities where the average cost of a home has reached $ 1 million, according to Zillow.
“Unfortunately, the dream of the middle class to own a home has faded,” Redfin chief economist Daryl Fairweather told CBS MoneyWatch. Owning a home in the U.S., he said, “is a signifier of the upper class now.”
New housing data released on Monday underscores a sharp rise in house prices. According to the S&P Case-Shiller index, a closely followed indicator of the housing market, house prices rose almost 19% last year, compared to a gain of about 10% in 2020. it is the sharpest one-year increase in the index to more than three decades.
“Housing prices remain excessively high and are affecting affordability,” Rubeela Farooqi, chief US economist at High Frequency Economics, said in a report.
Welcome to the third year of the pandemic real estate market, which experts described to CBS MoneyWatch as “deeply stressful” and “ultra-competitive.” This comes after a hot real estate market in 2021, when the average selling price of existing homes rose about 16% to nearly $ 360,000, according to NAR.
Not enough houses
Compared to a year ago, the market has become even more difficult for home buyers. Not only has inventory been reduced, but first-time home buyers are competing with current investors and homeowners who have amassed capital over the past two years of rising house prices and who therefore they have more money to spend on housing.
“It’s worse, believe it or not, it’s objectively worse,” Fairweather said. "There aren't enough houses for everyone who wants to buy them."
The shift from the pandemic to work from home has allowed white-collar workers to move from expensive regions to cities with lower cost of living, making housing more competitive for locals in these markets. Out-of-town shoppers typically spend 30% more on a home than existing residents, Redfin found in a recent report.
Scarce, expensive, and scarce housing used to be the norm primarily in large coastal cities like San Francisco and New York, but has now spread to smaller regional cities like Nashville, Tennessee, and Austin, Texas.
Fairweather said, "There are buyers of middle-class homes who can afford a home now, but they will be in more affordable cities."
Some parts of the United States have more homes for middle-income buyers than the national average, according to a recent analysis by the National Association of Realtors. They range from big cities like Atlanta to cities like Deltona, Florida.
Surely, Americans continue to buy homes: the rush of the property pandemic caused the home ownership rate to be 65.5% in 2020, an increase of 1.3% over 2019 , the National Association of Realtors said Wednesday. However, those who buy are usually richer than the typical U.S. home and already have a home, according to Zillow’s 2021 housing trends report.
Zillow found that home buyers have an average family income of about $ 90,000, compared to the national average of about $ 66,000. Given the challenges of the pandemic real estate market, this means that first-time home buyers are a shrinking share of the market. First-time buyers accounted for 37% of all buyers in 2021 compared to 43% in 2020, Zillow said.
Adding rooms
But pressure on middle-class buyers is worrisome for some reasons, said Nadia Evangelou, senior economist and NAR forecast director. Home ownership is one of the main methods for generating wealth, and landlords typically have a net worth 40 times greater than that of tenants.
“The wealth gap between first-time home buyers and existing home buyers can widen even further,” he said. Middle-income Americans "can't buy a house because there's a lot of competition. There's a lack of affordable entry-level housing."
With these hurdles, some first-time home buyers resort to adding roommates so they can group their assets to buy a property. Amanda Schneider, a 30-year-old lab technician, teamed up with two more people to buy a home in Gallatin, Tennessee, for $ 315,000 in the early days of the pandemic. She said it could have been an exaggeration to buy a house for herself.
“We feel very fortunate to get the house we did,” Schneider told CBS MoneyWatch, noting that the value of the property has increased by 35% since they bought it in 2020. “It’s extremely difficult for other families and groups buy a house right now. "
According to real estate agent Hope Dyer, who works in Nashville, buyers are also incorporating extras to make their deals stand out.
"Last weekend, one of our agents had a house with multiple offers. A potential buyer had a timeshare that he didn't use, so he offered a seven-night vacation in his timeshare and $ 1,000 in Bitcoin." , he said.
That offer won, Dyer noted.
Increase cash offers
According to experts, cash offers are becoming increasingly popular because sellers often consider them stronger offers. There is a perception that there is less risk that the deal may fail due to funding issues, for example.
But most buyers don’t have the financial means to make a cash offer, which is why “proptech” (or real estate technology) companies are stepping in to help middle-income home hunters compete with richer people.
This idea caught John Wai’s attention when the accountant decided to move to a smaller house after it became an empty nest. He said he started researching how to make a more attractive offer for sellers and came across Flyhomes, which offers bridge loans to customers so they can make a fully cash offer.
Wai said that when he and his wife found a home they wanted to buy in Woodland, California, they were able to immediately make a cash offer, even though they had not sold their current home near San Francisco.
“Without the cash offer, we wouldn’t have gotten the house,” Wai, 51, noted.
What to keep in mind when buying a home
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Flyhomes, which makes money with loans and acting as agents for buyers and sellers, is designed to “make every buyer a cash buyer,” said Tushar Garg, CEO and co-founder of Flyhomes. Cash offers reduce risk for sellers while offering a stronger offer for a potential buyer, he said.
This helps buyers who need to sell their current home to buy their next property, a problem when sellers do not want to accept contingencies, Garg added. And it offers a competitive advantage to people who have not been able to accumulate capital through home ownership.
“Cash has always been king in the real estate industry, but it has been limited to a small group of buyers,” he said. Today, "You can't even enter the market with a 5%, 10% or 20% low."
Increase in mortgage rates
Despite the struggle many are experiencing with home buying, there could be some relief in the store by the end of the year, economists say. On the one hand, mortgage rates are rising, which means that some potential buyers may decide that they cannot afford to buy a home right now.
According to Freddie Mac, a 30-year mortgage averages about 3.9%, compared to 2.8% the year before.
And more properties are expected to enter the market this spring, Evangelou of NAR said. Housing construction is recovering and supply chain problems may be alleviated by the end of the year, which would help with housing construction, as some parts and supplies are difficult to achieve in these moments.
“We expect more homes to enter the market and, due to the increase in mortgage rates, we expect home purchases to decline in 2022 compared to 2021,” he noted.
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