The U.S. Has Built Millions Too Few Homes – But You Can Still Buy!
Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
Solutions for Middle-Class Homebuyers Amidst the Real Estate Prices Crisis
Peter Thiel {see below link} summarizes why people struggle to buy a home. The US has consistently built too few homes almost every year since the housing bust got rough in 2007. Homeownership is still the best investment for legacy wealth.
Over the past five years, the US National Home Price has skyrocketed by over 50%. In contrast, wage growth has trailed behind, increasing 22% since 2019. To make matters worse, interest rates have surged from about 2.7% to an alarming 7.0%. Many middle-class families find themselves priced out of the housing market altogether.
Understanding the Obstacles
Before diving into solutions, it’s crucial to understand the significant pressures facing potential homebuyers. Numerous factors, including low inventory, high-demand housing markets, and increased investment in real estate by institutional buyers, drive the steep rise in home prices. Concurrently, rising interest rates have made borrowing more expensive, squeezing buyers tighter as monthly mortgage payments soar. The interplay of stagnant wages has created a perfect storm, leaving many middle-class buyers hopeless. There are actionable solutions to mitigate these challenges and help middle-class buyers secure a piece of the American Dream.
Solutions for New Homebuyers
1. Consider Alternative Housing Options
Buyers should explore diverse housing options beyond traditional single-family homes. Townhomes, condos, and multifamily {duplexes triplexes} units can provide more affordable entry points into the real estate market. These properties often can be more budget-friendly, allowing buyers to accumulate equity without stretching their finances too thin.
My first two homes were condos and townhomes because they were more affordable. One word of caution – Homeowners Association {HOA} fees go in the same direction as Superman – UP, UP, AND AWAY. Â
2. Where Can You Afford To Buy?
The question is NOT where you want to live but where you can find employment and AFFORD to buy a home. I would love to live in Hawaii, but there is this thing called reality!
Adjusting location preferences can significantly influence affordability. Major cities attract buyers due to their amenities and job markets, and smaller towns and suburbs typically offer more reasonable home prices. By considering areas further from city centers or up-and-coming neighborhoods, you can find hidden gems that provide a good/safe community and lifestyle at more affordable prices.
3. Leverage First-Time Homebuyer Programs
Many states and local authorities offer first-time homebuyer assistance programs, which can provide down payment assistance, tax credits, or favorable mortgage terms. Researching and applying for these programs can yield substantial financial benefits, making it easier to enter the market.
4. Invest in Fixer-Uppers
For those with the skills and willingness to do extra work, investing in a fixer-upper can present significant savings compared to move-in-ready homes. While these properties may require renovations, they often come with lower price tags. With a clear vision and smart budgeting, buyers can turn these properties into their dream homes, all while building sweat equity.
5. Utilize Creative Financing Methods
Many buyers remain unaware of alternative financing options that can alleviate the financial burden of homeownership. For instance, seller financing, where the homeowner acts as the lender, can reduce closing costs and eliminate the need for traditional bank loans. I purchased one investment property using owner financing. Additionally, exploring programs like lease-to-own agreements may provide a pathway for prospective buyers to begin building equity before buying a home.
6. Budgeting
Someone recently asked me how I lost weight. I honestly replied I am eating less. To buy a home, you must spend less and save up a downpayment!
A comprehensive review of personal finances should take center stage in preparing for homeownership. Identifying unnecessary expenditures and redirecting those funds toward savings can create a good down payment. Engaging with financial advisors or using budgeting software can also aid buyers in making a realistic financing plan for homeownership.
7. Harness Technology in Your Home Search
The advent of technology has reshaped the way buyers search for homes. Platforms such as Zillow, Realtor.com, etc., can provide insights into neighborhoods, pricing trends, and property values, making it easier to make informed decisions. Additionally, virtual tours and online home shopping allow buyers to survey homes without incurring travel expenses.
8. Collaborate with a Real Estate Agent
Having a knowledgeable/experienced real estate agent can be invaluable. They help navigate the complexities of the current market and track down properties that fit your criteria. Agents also have access to exclusive listings and can offer insights into up-and-coming neighborhoods based on market analysis.
9. Advocate for Policy Change and Community Investment
Finally, buyers can engage in community initiatives that support affordable housing development. Advocating for local, state, and federal policy changes to encourage the building of affordable housing and the preservation of existing options can reshape the landscape for future buyers. Joining local housing advocacy groups can amplify voices calling for change in policies that support sustainable housing solutions.
Conclusion
The current real estate crisis is daunting, particularly for young, middle-class buyers who aspire to own homes. Nevertheless, you can own your home by exploring alternative housing options, leveraging financial programs, and maintaining an adaptable perspective! Buyers looking for an affordable home should go into the process with a flexible mindset. It’s crucial to distinguish between things you want and must-haves, as this can help expand your list of possible homes and improve your chances of scoring a deal.Â
Peter Thiel warns of a ‘catastrophe’ in US real estate that will deal a massive blow to young Americans—but also sees a ‘giant windfall’ for one class of boomers. Are you part of this group?
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I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an NC. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
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I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, and real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
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