NEW YORK — Christine Rodriguez decided to extend the lease on her rental trailer in Des Moines, Iowa, last month after spending more than a year trying to buy a first home.
Under the renewed lease, however, she will pay 13% more rent over the next year, with her payment increasing from $1,200 to $1,350. And as prices also rise for basic necessities like food, electricity and gas, her monthly expenses will rise from $1,600 to $2,000.
Rodriguez, a waitress at a sports bar, and her husband, Oscar, a construction worker, had meticulously saved for five years to pay a down payment on a home between $150,000 and $220,000. But when they started looking early last year, they found the pandemic had upended the housing market, reducing the number of available homes and driving prices to historic highs. Intense competition and multiple offers forced her to increase her budget for a new home. After starting in the $180,000 to $215,000 range, she is now eyeing prices between $210,000 and $230,000.
“We have no choice,” says the 36-year-old mother of six. “There are no houses there. And our expenses are skyrocketing.
Rodriguez isn’t the only one in this predicament. Many Americans are looking for homes, but those buying entry-level or starter homes — those under 1,400 square feet — are especially challenged.
Over the past 12 months, rents have risen by an unprecedented 18% nationally, according to Apartment List’s National Rent Report released in January. And housing costs have seen a similar increase, with the median sale price of an existing single-family home reaching $364,300 in December 2021, up 16% from the same month a year earlier, according to the National Association of Realtors.
Why is the housing market so high right now?
For potential buyers of starting homes, the situation has worsened over the past year. In addition to facing fewer and more expensive homes on the market, rampant inflation and rising mortgage rates further threaten to diminish their purchasing power.
Inflation rose 7% in the past year, its fastest pace in nearly 40 years, and mortgage rates continued to rise, making affordability even more out of reach for many.
Indeed, homes priced between $100,000 and $250,000 saw sales volume decrease by 23% in December 2021 compared to December 2020, while homes sold in the more than one million dollars increased by 38% during the same period, according to the data obtained. of the National Association of Realtors by USA TODAY.
The data once again highlights the divergent experiences of haves and have-nots that have defined much of the pandemic housing market.
“There’s a lot of buyer interest but no supply,” says Lawrence Yun, NAR’s chief economist. “The wealthy have seen record highs in the stock market and amassed real estate wealth and can afford high-priced homes.”
One of the main drivers of the housing shortage is the decline in construction of entry-level homes, according to Sam Khater, chief economist for Freddie Mac. The number of start-up homes under construction has dropped significantly, from 40% of homes built in 1980 to 7% in 2019.
Tiffany Ehler, a real estate agent who worked with Rodriguez, says that in 2021 the Des Moines housing market saw its lowest inventory of homes for sale in 20 years.
“Since June 2020, we have been in an inverted market where we have more homes waiting than for sale,” she says. “And in 2021, home values are up almost 20% instead of our usual 4-6%.”
Ehler says either the houses have been too expensive for Rodriguez or the house is selling too fast.
“It was gone before we could schedule a showing, like, sometimes just later in the day,” she says. “What if we were to see one…that she loved, he was gone by the time her husband could see him.”
The missed opportunity to buy a home can have long-term financial consequences and contribute to significant wealth disparities, according to an analysis by the Urban Institute.
For example, those who bought their first home between the ages of 25 and 34 have the greatest real estate wealth, amassing nearly $150,000 in median home equity by age 60, according to the report. People who bought between ages 35 and 44 had $72,000 less in home equity by age 60, and those who waited until age 45 or older lost more than $100,000 in median wealth.
“Homeownership has always been the best way to build wealth, and if you can’t hang onto that ladder, you don’t have that opportunity,” says Laurie Goodman, director of the Housing Finance Policy Center. from the Urban Institute. “My advice would be if you can stretch to buy a home now, you should do so because of the long-term opportunities to build wealth.”
Due to the imbalance of supply and demand, the likelihood of home prices falling is low, Goodman says.
And that makes buying something crucial, especially with the rental market on the rise.
“When you enter the housing market, you lock in most of your housing expenses with a mortgage,” says Goodman. “In a world of rising inflation, that’s very, very valuable. You’re also looking at a few years of big rent increases, which will only make it harder to save for that home.
Jonathan Weldon lives this reality. Last July, Weldon, a young pastor, moved with his family from Shreveport, Louisiana to Georgetown, Texas, about 25 miles north of Austin, when he started a new job at a church there. low.
In Shreveport, he was able to sell his 2,300 square foot home in less than a week for $2,000 more than asked. Over the past six months in Austin, where home prices have risen 30% in 2021, it has lost several offers to people offering more than $30,000 above asking on homes priced at around $250,000.
Meanwhile, rents have risen 40% in Austin, according to Redfin.
After staying with a church friend for a few months, Weldon is now paying $1,475 to rent a duplex home, more than he was paying in the mortgage on a larger home in Shreveport. A year ago, rents in Austin for similar accommodation would have been closer to $1,000 to $1,100.
“It’s hard because the last thing I want to do is pour money into something that I’m not getting any return from. I really didn’t want to rent at all,” he says. “If you’re going to stay somewhere longer than two or three years, you need to build capital, and we’re not doing that at the moment.”
Chris Lefforge, a Redfin agent who worked with Weldon, calls it “a perfect storm”.
“We have a whole bunch of new people coming in from all over the country and we have about 29 days of inventory. A balanced market would be around six months of inventory,” he says. “Furthermore, we also have competition, not only from other first-time buyers, but also from investors trying to buy all the properties they can, especially in the lower price bracket.”
While starter homes tend to be in the $250,000 range and remain the most competitive, sales of the most affordable homes (median sale price of $127,500) are up 11% year over year. on the other in the fourth quarter of 2021, according to Redfin. That’s likely due to a few trends, including investors buying properties that need fixing, workers earning more as the economy strengthens, and the end of mortgage forbearance forcing some homeowners to list their homes, says Daryl Fairweather , Redfin’s chief economist. .
“We are currently seeing an increase in listings of the most affordable homes, as these are owned by people who are likely to have lower incomes, more likely to have been laid off during the pandemic, and more likely to have missed payments” , she says. “Since the market is so strong, people who are behind on their mortgages might think now is a good time to cash in and list their homes.”
House prices rise out of its range
When Alexa Erb, 27, found a new job at Boston University last month working on diversity and inclusion initiatives, she enrolled in a course for first-time home buyers. Her current role at Bentley University in Waltham, Massachusetts, comes with free on-campus housing, and Erb says she hopes to buy a condominium when she takes up her new job next month rather than to pay rent.
“I’ve had the privilege of free housing on campus for the past two years and have been saving for a down payment. I want to build some of that social and cultural capital that comes with buying a home. adds Erb, who is looking for something in the $300,000 range, but acknowledges, “There is very little in my price range.
That hasn’t stopped Erb from making three offers in the past three weeks.
“The first one, I made an offer of a few thousand dollars more,” she says. “And I was very clearly beaten by one of the other 30 people who were at the open day and had the means to offer something even higher than me.”
But Erb says she’s determined and plans to sign a short-term rental lease, maybe an Airbnb, until she finds her own place.
“I think it’s a very important way to establish myself,” she says. “Buying my first home is attractive, knowing that my money is doing something. »
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