It’s been more than a decade since the 2008 financial crisis, but the affordable housing market is still playing catch up.
According to Harvard University’s The State of the Nation’s Housing 2019, home construction remains sluggish. About 1.2 million homes were built in the year that the study covers, roughly 260,000 fewer than the market needs.
And the report signaled other concerns, especially for first-time homebuyers who are looking for affordable housing options. If you expect to be looking for an affordable home in 2020, here are the trends you should know about.
Homebuilders are not just building fewer homes. When they do build, they often are constructing higher-priced housing that is too expensive for many homebuyers. The report blames the lack of affordable housing on rising prices for labor, land, and material, making it less lucrative for homebuilders to produce less costly homes.
What’s more, not as many small homes, which typically are cheaper, are being built, according to the report. The number of homes under 1,800 square feet represent 22% of the single-family homes built, compared to an average of 32% from 1999 to 2011.
And other affordable housing options may be limited. Manufactured housing has slipped. While it increased 4% to 96,600 in 2018, that’s still less than half the number built annually from 1987 to 2006. The number of townhomes completed also is far below the totals of the early 2000s, according to the report.
Another sign that affordability is an issue is a measure that compares the median home price in an area with median household income that people earn there. The Harvard report found that housing costs are going up faster than income levels. In some areas, those households earning the median income could afford only 36% of the recently sold homes.
In fact, the cost of affordable housing is on the rise when compared to higher-priced homes. The study cites a report from CoreLogic, which found that the sales price for affordable homes rose nearly 7% in the final quarter of 2018, more than twice the rate for more expensive homes.
It’s no surprise that housing in cities like San Jose and Honolulu is incredibly expensive. And fast-growing regions in the South and West, such as Atlanta, Dallas, Nashville and Denver, also have fewer affordable options, the study says.
But the report also found that “traditionally low-cost markets” in the Midwest, including Grand Rapids, Indianapolis and Kansas City, remain affordable, but income levels may not be keeping up with home prices there.
It’s not all bad news. Baby boomers who want to downsize and millennials who are looking for their first home will fuel the need for smaller, less expensive homes —- and should trigger the construction of more affordable homes and renovations of existing ones, according to the report.
So, what should you do if you’re on the hunt for an affordable home? Here are three tips to help you find a home successfully.
Prepare ahead of time
Know going in that, depending on where you live, the hunt for your perfect home may take longer than you had hoped. Prepare yourself with the knowledge and funding you need to have in place to make an offer when you find a great option. A great place to start is by meeting with a HUD Certified Housing Counselor. They can help you achieve the dream of homeownership by providing access to housing counseling and education that will prepare you for homeownership. A housing counselor can also help you determine whether there are down payment assistance programs you may qualify for to help make the purchase of a home achievable for your family.
Consider your options
As you scope out neighborhoods in your area, broaden your horizons. Is there a suburb or town a little bit further away from your current search area that might offer more affordable housing options? Look at what’s available and consider the pros and cons as it relates to your commute to work, your children’s school, and other factors. A real estate agent can often provide you with detailed information about the neighborhoods you are considering.
Be ready to move quickly
If there is a shortage of affordable housing where you live, you’ll want to be ready to put your money down as soon as a home in your price range and that meets your other requirements goes on the market, so you don’t miss the opportunity. Doing the work ahead of time to get pre-approved for a mortgage can help you move more quickly when the time is right.
Consumer Education Services, Inc. (CESI) is a non-profit committed to empowering and inspiring consumers nationwide to make wise financial decisions and live debt-free. Speak with a certified counselor for a free debt analysis today and get your finances on track to achieve your dream of homeownership!
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