Interest rates are low. Wages are heading up. There may be no better time to buy a house.
So just why is it so darn difficult?
“It’s a good time to buy a house in theory,” says Svenja Gudell, chief economist at Zillow, a real estate listing website. “But practically, it’s very hard actually getting there.”
There are several headwinds at work in the housing market.
There’s been a shortage of houses on the market, especially at the more affordable price points.
That makes buying a house more of a stretch, especially for newbie buyers who aren’t transferring equity from an existing home, who have shakier finances or have problems scraping together a down payment.
Home prices have been heading up. While they still tend to be priced below pre-bubble highs, homes are more expensive than they were a year or two ago. Again, that’s good news for existing owners; not so good news for first-time buyers.
Houses are now less affordable compared to income. “Aspiring home buyers still need to overcome one major obstacle before they lay eyes on their dream home: Can they afford it?” writes Jonnelle Marte for the Washington Post.
In fact, affordability was the biggest concern among all U.S. home buyers, in a new report commissioned by national realtor Redfin. Concerns about affordability were particularly acute among millennials, and potential buyers aged 35 and younger.
Marte, writing for the Washington Post, explains that the amount you need to earn to buy a new house varies by location. The typical U.S. worker now needs to earn $52,700 a year to afford the a home worth the national median price of $240,700, although real estate hot spots like San Francisco and San Diego will cost you far more than that.
And you’ll need to earn extra dollars – $65,120 to be exact – to buy a house in South Florida, according to research by HSH, a mortgage information website.
Here’s some tips to help you land that perfect house, based on our own clients’ experiences:
Use a good realtor. There’s no substitute for a knowledgeable and experienced realtor. They can help you set realistic price targets, make you more attractive to potential buyers, and point you to the best buys. After all, for most people, their home is their biggest lifetime investment. Don’t blow it.
Have a trustworthy mortgage contact. Why, oh why, do we keep seeing inexperienced buyers fall for crummy mortgage deals? If you intend to stay in your house for years and years, please don’t opt for the deceptive teaser rate that adjusts upward before you can hang the pictures on the walls.
It’s no shame to ask mom and dad. Even dual income young couples have a really hard time coming up with enough money for a down payment. We see many parents with surplus funds help out, either via an outright gift or a loan.
Don’t stretch too far. The biggest mistake we see young buyers make? They overestimate what they can truly afford, egged on by overzealous realtors and mortgage “experts,” and get themselves into loads of trouble. Just because you can qualify for it, doesn’t mean you can afford it. New homeowners fail to appreciate the ongoing maintenance costs of a home, and often jump into buying before they’ve established an emergency fund, budgeted for health and life insurance, and paid down student and credit card debt.
For most people, homeownership is an important rite of passage, but it’s one you want to make sure to take on the right way.