Loads of houses are up for sale — but middle-class buyers are still shut out

Loads of houses are up for sale — but middle-class buyers are still shut out

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June 28, 2019

Original article: Washington Post By Taylor Telford January 24, 2019

Despite an uptick in homes on the market and weakening home sales across the country, home ownership is out of reach for a growing number of middle-class buyers, according to a recent report from real estate brokerage Redfin.

An analysis of U.S. homes on the market in 2017 and 2018 found that the number of affordable homes for sale has decreased in 86 percent of metro areas (of 49 included in the study), even as the number of homes on the market grew. While buyers normally benefit from better availability in competitive housing markets, it doesn’t help if the majority of available homes are priced for the wealthy.

“For the past few years, home prices have gone up faster than wages,” said Daryl Fairweather, chief economist at Redfin. “That kind of growth really isn’t sustainable. At a certain point, there won’t be enough buyers left for the homes left on the market.”

Home ownership has long been at the heart of the American dream, a means of accumulating wealth and securing financial stability. But ownership rates have fallen dramatically since the financial crisis — coming in at 64. 4 percent in the third quarter of 2018, according to data from the U.S. Census Bureau — a telling sign that the traditional markers of middle-class life are getting tougher and tougher to hang onto.

To estimate affordability, researchers used the median income in each metro area, applied standard interest rates and assumed a 20 percent down payment and a monthly mortgage payment of 30 percent or less of the buyer’s gross income. Even adjusting for 10 percent down payment, just over half of homes on the market were affordable, according to the study.

In Seattle, the share of affordable homes fell 14 percent from 2017 to 2018, leaving only 46 percent of homes within the reach of middle-class families. In San Jose, Calif., the share of affordable homes fell from 26 percent to 14 percent over the same time.

According to the National Association of Realtors, existing home sales in December were down 10.3 percent year over year, the biggest drop since the housing market bottomed in 2011. At the same time, the median home sale price was $223,900, according to Zillow’s home value index.

Current conditions mirror what happened after the housing market collapsed. Prices tumbled and property was abundant, but the only people who could afford to buy were those who hadn’t been crippled by the financial crisis. Years later, a booming economy has yet to restore buying power to middle-class families, as mortgage rates and home prices have climbed. Prices surpassed their pre-crash peak in October 2017. And according to a December report from ATTOM Data Solutions, last quarter was the nation’s worst for home affordability in over a decade.

In metro areas, part of the issue is a lack of public investment in affordable housing, Fairweather said. The problem is often exacerbated in cities that serve as hubs to major tech companies, where an influx of highly paid workers has ratcheted up prices and cost of living. It’s fueling a flight from the coasts, as increasing numbers of people move inland in search of affordability.

Some states and cities are taking steps to correct this. California’s Gov. Gavin Newsom has an ambitious plan to oversee construction of 3.5 million new housing units by 2025. In November, the Minneapolis City Council signed off on $12 million in affordable housing investments throughout the city. Private companies are even stepping up to the plate — and Microsoft announced it’s offering up $500 million to build and protect affordable housing in Seattle.

The housing market is a cornerstone of U.S. economic output, accounting for over 12 percent of the country’s GDP in 2017. With the economy deep into an expansion, there’s been a rise in first-time home buyers, but if conditions persist, many may be priced out and forced to rent instead.

“Now the economy is doing better and more people are looking to buy a home for the first time,” Fairweather said, “but they’ve missed the boat on affordable deals.”

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Prices falling in expensive cities

In two-thirds of major regional housing markets — 98 out of 148 — prices continue to drop, especially in more expensive locations.

We may see expensive markets fall further, which if that happens sooner than later, would make it an excellent time to buy into an expensive market. This wouldn’t have registered as a possibility even a few months back.

It’s difficult to predict if this will happen. And if so, whether falling prices become offset by the federal interest rate hikes practically certain to arrive in the coming months.

The only way to know for sure is to wait until the latest rate hike sets in.

Meanwhile, keep in mind that — as with any investment — it’s best time to buy is usually when prices are low.

‘Deals to be had:’ Homebuyers Should Ask For These Incentives While They Have The Upper Hand

The days of waiving contingencies such as appraisals and forgoing inspections are fading into the rearview mirror. Still, contract activity remains slightly competitive depending on your location.

At least 24% of buyers waived the inspection contingency in December 2022, according to the National Association of Realtors confidence survey, up from 16% a month prior and 19% one year ago. An additional 24% of buyers waived an appraisal contingency in December, up slightly from 16% in November and 21% a year ago.

Home inspection contingencies are particularly important because it can let you know if there’s a deal-breaking issue with the property before a purchase occurs. It can also help you negotiate repairs with the seller, which is becoming increasingly common in today’s market.

“If buyers have this short window to buy where they can get incentives to purchase, [they] would rather buy where they have an opportunity to really think about it, get an inspection, a financing contingency and not feel rushed,” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance.