With home prices soaring in 2022, buyers may feel they have only two chances to land a new property – slim and none.
“Middle-class Americans were already priced out due to the price gains in 2020 and 2021,” said Kevin Oakley, contributing editor at Builder Magazine.
Interest rates are getting the majority of the blame, but someone who could afford a home in March 2022 could still afford a home -- in most cases -- using the mortgage options available today, Oakley noted. But it won’t be easy.
“As rates go higher throughout the year (they will keep increasing until inflation is under control) then it could cause a second wave of affordability issues for even upper-class home buyers,” he said.
'Most Affordable' U.S. Cities
That scenario may be avoided if a buyer is looking to expand their real estate horizons.
One way to do that is to move to a city where homes are more affordable. After all, with legions of U.S. career professionals working from home, buyers aren’t necessarily anchored to cities with blockbuster home prices.
Where are those affordable real estate landing spots?
Realtor.com is out with a fresh list of cities where a $72,000 annual salary can land a good home.
Assuming a middle-class income of $72,000 and an average listing price of $280,000 (fully 38% lower than the U.S. median price of $450,000 in June 2022), with a 10% down payment and a 5.25% 30-year fixed mortgage rate, Realtor.com lists these cities as being most affordable for middle-class Americans.
Youngstown, OH. Median home price: $129,900
Percentage of homes affordable for middle-class buyers: 85.5%
Scranton, PA. Median home price: $215,000
Percentage of homes affordable for middle-class buyers: 72.3%
Syracuse, NY Median home price: $199,900
Percentage of homes affordable for middle-class buyers: 70.3%
Wichita, KS Median home price: $265,000
Percentage of homes affordable for middle-class buyers: 63.3%
McAllen, TX Median home price: $260,000
Percentage of homes affordable for middle-class buyers: 58.8%
St. Louis, MO Median home price: $273,900
Percentage of homes affordable for middle-class buyers: 58.5%
Detroit, MI. Median home price: $249,900
Percentage of homes affordable for middle-class buyers: 57.4%
Little Rock, AK. Median home price: $279,900
Percentage of homes affordable for middle-class buyers: 56.5%
Tulsa, OK Median home price: $295,000
Percentage of homes affordable for middle-class buyers: 56.5%
Louisville, KY Median home price: $289,900
Percentage of homes affordable for middle-class buyers: 54.2%
Choosing – but Not Chasing – the Right Home
There's no one-size-fits-all answer for when to enter the market, especially now. That said, paying close attention to a preferred market and gaining a strong understanding of the specific neighborhood of interest can make a big difference.
“Demand, inventory, and affordability can vary greatly market-to-market,” said Robert Heck, vice president of mortgages at Morty, in New York.
“Inventory that continues to decline suggests that current mortgage rates have not had a significant impact on the local market while increasing inventory suggests that rising rates and market conditions have begun to soften demand, meaning buyers may have a bit more leverage.”
Heck offers these specific tips for 2022 home buyers.
Make a budget, if you don’t already have one. As a future homeowner, having a budget and saving money for things like home maintenance will be important, not to mention it’s almost impossible to find ways to save money if you don’t know how your family is spending it.
“While the idea of creating a budget can be intimidating, it doesn’t need to be complicated,” Heck said.
“Start by taking a look at your family’s income, subtracting ongoing bills and expenses, and then dividing the rest of your spending into categories that make sense for your family.”
Evaluate and eliminate big monthly expenses. Start by thinking about how you might reduce your biggest expenses first. Can you rent a smaller or less expensive apartment that will still be comfortable for your family while you’re saving for your future home? Do either you or your partner’s parents have a home large enough to host your family comfortably for a few months?
“Maybe you can forgo a vacation or put off buying another car for a few years,” Heck noted.
Be strategic about the down payment. A down payment on a home will be a sizable amount of money, no matter how you look at it.
“Once your family has saved up, it’s time to think carefully about how best to use it to serve your financial needs,” Heck said.
“A traditional 20% down payment on a new home means that mortgage insurance" -- insurance that protects a mortgage lender in the event that a borrower can't repay the mortgage -- "is not required.”
But of course, every family’s financial situation is unique.
“Putting less money down and opting for mortgage insurance could make more sense financially in some cases, so consider what you might be able to do with the money if you make a smaller down payment and keep the difference,” Heck added.
