Sales may be more sluggish but housing affordability isn’t following suit. The National Association of Realtors' Housing Affordability Index shows that affordability dropped in 2018. The median home price rose from $248,800 in 2017 to $261,600 last year. During that same period, the median family income only rose $2,467.
What are hopeful homebuyers to do?
One bit of good news for buyers is annual appreciation for 2018. CoreLogic data shows that December home prices were up 4.7%, which is the smallest increase in six years. It’s an indicator that appreciation is slowing down to a healthier, more manageable pace. Another silver lining is the increase in homes for sale, which gives buyers a better selection and suppresses price increases.
Many experts predict this is the year that things will turn around and balance the markets. Buyers that are motivated to find a home are using several tactics to take advantage of the cooler markets and overcome affordability issues.
Jumping on Lower Mortgage Rates
One factor that can make owning a home more expensive is the average mortgage rate. Last year the mortgage rate steadily crept upward putting a damper on home sales. It’s a fact that hasn’t escaped the Federal Reserve. So far this year rates have went in the other direction and buyers are taking advantage of the lower interest rates.
Agents are likely to see buyers that want to move ASAP in order to lock in the lower rates before they change. Buyers are also more likely to establish relationships with mortgage companies to secure the best interest rate possible.
Starting the Home Search in Spring
Typically, the summer is when buyers come out in full force. But this year more buyers in many markets are starting the search in spring. The lower interest rates are part of what’s motivating spring buyers, but competition is another factor. Right now while markets are brimming with inventory and fewer buyers people are less likely to end up in a multiple offer situation and more likely to pay below list price.
Going Smaller (and Smaller)
The majority of buyers may not be ready for a dramatic downsize to a tiny home, but they are open to the idea of going smaller. It’s a trend that’s been on the rise for the last three years. The reason is pretty simple - less square feet means a lower price tag up front and more manageable maintenance costs long-term.
A clear indicator that shows buyers are willing to go smaller is the size of new builds. For more than a year, new home builds have been smaller than in the past. It’s a conscious decision on the part of builders that are trying to keep costs under control and make their homes more affordable for middle Americans.
Relocating to a More Affordable Market
Millennials that aren’t yet well established in an area or supporting a family are willing to pull up stakes and relocate to find a home they can afford. A survey from Realtor.com found that affordability influences where Millennials live more so than Baby Boomers and Generation X. They are also more likely to buy in smaller, secondary markets where homes cost less. That doesn’t mean buyers have to move out of their current metro, but they are looking away from the urban centers towards to outer suburbs.
Keep the points above in mind this spring as more buyers begin their home search. Real estate agents that understand how falling housing affordability is affecting buyer behavior have a better chance of connecting with clients and writing up contracts.