Wondering if you’ll ever be able to afford a house? You’re not alone. Over 9 million Americans have been priced out of the housing market this year — and among Americans who are unhappy with their location, 52% can’t afford to move. And we know that cutting out avocado toast is not the solution so many seem to think it is.
Housing prices in the U.S. are breaking records in 2022, and average home prices have far exceeded the rate of inflation (which is already at a high for the past decade). Since 1970, home prices have increased 1,608%, while inflation has increased 644%, according to research by the Clever Data Center.
Mortgage interest rates are skyrocketing too, jumping nearly 3.5% in the first half of 2022. Even if you find a good deal, it’s often still too expensive to make an offer unless you have excellent credit, a down payment, and cash for closing costs on hand.
A house is more than just shelter. It’s safety, security, and an investment that can help you get ahead financially. But what if you’re priced out of your local housing market and can’t afford one?
You might feel stuck in the cycle of renting, but you have options – from harnessing government resources to tapping into more affordable markets. Not to mention, the tide may be turning as the housing market begins to cool and buyers gain more negotiating power.
Why So Many Are Getting Priced Out of the 2022 Housing Market
Houses cost 41% more today than they did in 2020. The median cost of homes went from $300,200 in 2020 to $423,300 in June 2022. It’s no wonder so many potential homebuyers think, “I can’t afford to live anywhere!”
One explanation for why so many are getting priced out of the housing market goes back to the start of the pandemic. Lockdowns and people working from home led to a growing need for housing.
At the same time, mortgage rates plummeted as the Federal Reserve began cutting interest rates and buying mortgage-backed securities. The goal was to put cash into the economy and keep mortgage rates stable so people could borrow the money they needed.
But there weren’t enough houses available. At the start of 2021, the U.S. was 3.8 million units shortof meeting the demand. The low inventory was enough to drive housing prices up. The combination of low inventory, record-low mortgage interest rates, and the increase in demand resulted in a housing market frenzy.
Median Home Price Increase from 2020 to 2022
But there’s good news: The housing market is (finally) cooling off — and buyers are gaining more power. Rising interest rates are pushing mortgage rates up, the number of home listings increased 28% between March and June 2022, and rising home-sale prices are starting to slow down.
House sales are also slowing down. According to Federal Reserve Economic Data, the median number of days on the market increased 11% in the past two months, from 31 days in May 2022 to 35 days in July 2022.
Housing Inequality Makes It Harder to Buy a House
Home prices aren’t the only challenge. Inequality in the housing market keeps millions of people from marginalized groups from achieving homeownership.
The racial wealth gap blocks many Americans from achieving the security and stability that homeownership provides, as lenders are less willing to lend to borrowers who have less money. According to the U.S. Census Bureau, the average Black household has just one-tenth the wealth of a typical white household.
According to a study from Brandeis’s Heller Graduate School for Social Policy and Management, over a quarter of disabled people in the United States spend more than half their income on housing, which means they likely cannot afford basic necessities, let alone save to buy a house.
Housing discrimination against LGBTQ+ people – and transgender and gender-nonconforming people in particular – also plays a large factor in housing inequality. The National Center for Transgender Equality states that one in five transgender people in the United States has been discriminated against when seeking a home. And once they get a home, they are far more likely to be evicted.
Inequality can lead to many obstacles, such as not having enough money for a down payment, inadequate income to afford high housing costs, being passed over during application, and a poor credit score or history of paying bills on time.
And if that wasn’t enough, property values in predominantly Black neighborhoods are worth over 50% less than properties in predominantly white neighborhoods, according to the Clever Data Center.
Still Dream About Buying a House? Here’s How
Buying a house is still one of the best ways to build wealth. The market is stacked against buyers and institutionalized issues and biases are still very present, but if you’re determined to buy a home against the odds, the options below are worth looking into.
💸 Before You Buy, Know What You Can Afford
Most experts recommend limiting your mortgage costs to no more than 28% of your gross income (what you earn before taxes). That might not be attainable in this economy, but it can still be a good measuring stick. When you spend too much on a house, you risk becoming “house poor,” meaning your housing costs are leaving you with too little to spend on everything else.
Tap Into Government Resources
The first thing to recognize when it comes to buying a home is that there are resources to help you, especially if you are part of a low-income household or if you’re a first-time home buyer. The federal government has resources and programs to help people who are priced out of the housing market find housing, and you can also look for home buying assistance programs in your state.
Here are some of the most beneficial programs to consider.
Talk to a Real Estate Agent About Your Options
If you want to buy a home but have no idea how you’re going to afford it, talk to a local real estate agent about your options. Most agents offer free, no obligations consultations and can give you an in-depth look at the market.
Expert agents can help you find a house within your budget range and negotiate to lower the price. They can show you which neighborhoods are more affordable, find hidden and affordable gems in the area, and tell you which houses are likely to sell faster than others.
Sellers typically cover a buyer’s agent’s fee when a house is sold, so you don’t have to worry about how getting an agent will affect your budget. In fact, working with an agent can save you money.
Make a Plan to Save While Renting
We recognize that renting is often as much as (if not more than) a mortgage payment and that makes it hard to save while renting. However, you usually won’t have to pay maintenance costs, property taxes, or the cost of replacing large appliances, so you might be able to put at least some of that money toward saving for a down payment.
If you have the means, budget to save a goal amount each month. If it’s an option for you, it can be a good idea to live with family or get a roommate to lessen rent prices and further increase your savings.
Look for a Home in a More Affordable Market
If home prices are too high in your area, consider looking in a different neighborhood, city, or even state. Housing costs vary significantly between locations, so you could find a house in a new area that’s more affordable.
The downside of finding a home in a more affordable area is that you might need to get a new job, have a longer commute, or make new friends. You’ll have to consider whether the lower housing costs are worth those changes.
Reset Your Expectations
Consider your must-have list. Is there anything on there that’s more of a want than a need, like a short commute or a yard? Are your kids willing to share a room or a bathroom? Can you put up some walls or bookshelves to create a smaller room if you need it? Being thrifty is all about finding creative solutions.
You also might have to open your mind to alternative housing like manufactured homes, fixer-uppers, or tiny homes that might actually be a great fit for you, even if it’s just in the interim until you have saved enough to buy a traditional home.
Revisit your budget and see if there’s any wiggle room so you can put more money toward a house within your means — even if it means compromising on some things on your wishlist.
FAQs About Being Priced Out of the Housing Market
How are people affording houses?
Many of the people buying houses in 2022 are older people who didn’t have to pay nearly as much for a house when getting started and have had more time to develop their finances to be able to afford a house. Also, according to Bloomberg there’s been a recent spike in parents buying houses for their children. Those who don’t fall into those categories likely live in a more affordable part of the country and have been able to use government resources to help them be able to afford a home. Here are some things you can do if you’re priced out of the housing market.
Will I ever be able to afford a house?
It might not seem like it, but you will probably be able to afford a house someday. The housing market is cooling off, and there are a lot of programs that should help you be able to buy your first home with low or zero down payment. Here are some things you can do if you’re priced out of the housing market.
Is it a bad time to buy a house?
Maybe. Housing prices skyrocketed and are finally cooling down, so it might not be the best time to buy a house if you’re priced out of the housing market right now. Wait a bit until things cool down further. When you do decide to buy a house and it fits your lifestyle and budget, there are some great resources to help first-time home buyers. Here are some things you can do to be financially ready to buy a house in the near future.
Why is it so hard to afford a house?
Housing prices and mortgage rates have risen dramatically over the past couple of years. Then add inflation, housing shortages, systemic bias, low minimum wage, and it seems like you might never be able to afford a house. Here are some things you can do if you’re priced out of the housing market.
How much should you have saved to buy a house?
Experts typically recommend that you save 25% of the housing price in order to cover the down payment and closing and moving costs. In order to figure out what kind of house you can afford, you should aim to have mortgage payments be less than 28% of your gross annual income if possible. Here are some things you can do if you’re priced out of the housing market.