We adhere to strict standards of editorial integrity to help you make decisions with confidence. Some or all links contained within this article are paid links.
If you feel like buying a home — and paying for the upkeep — has become more expensive than ever, you’ve just nailed the essence of what a new study calls the modern American Nightmare.
Oxford Economics, an independent global economic advisory firm, reported in its November briefing that housing affordability “has dropped significantly over the last five years.” According to data from 173 of American metropolitan areas, a household now needs an average annual income of $107,700 to afford a new single-family home.
This housing affordability crisis presents a daunting challenge compared to past years. Today, only 36% of U.S. households clear this financial hurdle, down from 59% in the third quarter of 2019, just before the pandemic. Back then, a combined household income of $56,800 could buy a single-family home.
In fact, the $108,000 figure doesn’t square at all with real median household income — which was $80,610 in 2023, according to the U.S. Census Bureau figures.
No wonder it feels like a For Sale sign driven straight through your heart.
Why home affordability has plummeted
The affordability crisis isn’t due to one or two factors, but at least four: mortgage interest rates, housing prices, property taxes, and insurance.
While the report acknowledges that mortgage rates have moderated somewhat, volatility remains. This time last year, rates for a 30-year mortgage peaked at 7.79%, compared to the record low of 2.65% in January 2021. Although rates fell to around 6.08% in late September, they climbed again to 6.78% by mid-November.
Meanwhile, U.S. home insurance premiums average $2,377 annually, with a 6% increase expected by year-end, on top of a 20% leap over the previous two years, according to Realtor Magazine.
Home insurance represents a significant percentage of a family’s annual budget — and if you pay the bill annually, it can be difficult to plan for that big expense. One way to make the expense easier to swallow is to cut it down to size — using BestMoney Home Insurance.
Their easy-to-use platform helps you find the best home insurance rates in your area. With a simple process, BestMoney makes shopping for home coverage fast, easy and affordable.
Just answer a few quick questions about yourself and your home, and you’ll find a list of offers tailored to your needs.
Three strategies for navigating the housing market
If these numbers have you doubting your chances of becoming a homeowner, consider these approaches:
Shop around for your mortgage
According to 2023 research from Freddie Mac, borrowers who received at least four rate quotes from different lenders saved up to $1,200 annually on their mortgage payments.
Mortgage Research Center (MRC) can help you save a similar amount.
Quickly compare rates and estimated monthly payments from multiple vetted lenders. All you have to do is enter some basic information about yourself, such as your zip code, desired property type, price range, and annual income.
Minimize property taxes
While major U.S. cities like Chicago and Atlanta face soaring property taxes, many metros offer lower rates — or none at all. Ballwin, Missouri, for instance, hasn’t imposed a municipal property tax in 37 years. With a median home price of $409,000, it ranks among Realtor.com’s Hottest 2024 Zip Codes.
Take advantage of first-time programs
First-time buyers can benefit from loans insured by the Federal Housing Administration (FHA), which require down payments as low as 3.5%. Veterans Affairs (VA) loans often require no down payment.
Additionally, IRS publication 590-B allows couples to withdraw up to $10,000 each from IRAs for a first home without incurring the 10% early withdrawal penalty.
By exploring these strategies, prospective homeowners can better navigate today’s challenging market.
Real estate investing
If you are priced out of the market right now, there are ways to take advantage of the big price jumps without taking on a property and mortgage. Investing in real estate investment trusts (REITs) and real estate exchange-traded funds (ETFs), for example, can help you grow your income — and maybe save for that downpayment.
Income-generating residential investments
Investing in short-term rentals and vacation homes is a great way to profit from the hot real estate markets in the nation’s most desirable (and expensive) cities.
For example, with Arrived, investors of all income levels can access SEC-qualified rentals and vacation homes with flexible investment amounts.
Simply browse their curated selection of homes, choose shares, and start benefiting from the income and appreciation potential for as little as $100 to begin.
You can also invest in private real estate, which can offer higher returns since it can be invested in opportunities that simply aren’t available on the public market. DLP Capital offers tax-advantaged, private REITs through various investment funds. They’re primarily focused on acquiring or developing safe, affordable rental housing for working families across the burgeoning Sun Belt region.
Investors in these funds can earn passive income through monthly, quarterly, or annual distributions — while making a positive impact on communities in need of more housing.
Commercial real estate investing
For those interested in further diversification through commercial properties, First National Realty Partners (FNRP) provides accredited investors with access to necessity-based commercial real estate investments.
As a private equity firm, FNRP acts as the deal leader and offers white-glove service to investors. The team handles all the legwork for you, from the vetting and buying of properties to the leasing and management details.
The firm then distributes its positive cash flows quarterly to investors, so you can increase your income without the hassle of buying and selling property.
These are just a few ways you can benefit from a hot real-estate market without sinking your whole (perhaps nonexistent!) six-figure salary into the costs of buying and keeping a home.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.