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Home Prices Rising Too Fast? Discover Affordable Locations to Buy

EXPECTED READ TIME: 14 MINUTES

Are home prices increasing so fast that you can’t find an affordable property to buy? Just as with any industry, real estate has its normal ups and downs. Because of the historically low interest rates over the last few years, more borrowers can afford to buy. With this higher demand, home prices are skyrocketing. But interest rates aren’t the only things driving the market. Besides the effects of low-interest rates – there can be major buying shifts in certain demographics. For example, more millennials are deciding to buy a home. And many aging baby boomers are looking to sell their family home and downsize. Read on to see what’s affecting the price of homes and some affordable locations to buy.

Why Are Home Prices Rising?

According to a March 2021 article in HousingWire, prices haven’t increased this much since 2005 and it’s because of increased demand. Those apartment dwellers that were planning on buying within the next few years made a move much sooner. And on the flip side, many homeowners that were planning to sell decided to hold off to see what would happen with the economy. So now, going into the summer of 2021, we’re experiencing a staggering 40% fewer homes on the market this year than last year.

High real estate prices resulting from the scarcity of homes for sale are an excellent example of supply and demand. Although it looks like the supply might be dwindling, the scarcity of inventory can’t go on forever. Let’s look back at the past year and also look ahead into the coming months.

Glaze, Tim. “Home Prices Haven't Risen This Fast since 2005.” HousingWire, 25 May 2021, www.housingwire.com/articles/home-prices-havent-risen-this-fast-since-2005/.

Pandemic’s Pause on Listings & Low Housing Inventory

Normally the spring is the best time to buy and sell. But, in March of 2020, instead of getting their home ready to sell, many Americans were coming to grips with the beginning of the pandemic. As it dragged on, a majority of homeowners chose to hold off on selling. They didn’t want multiple strangers parading through their homes during this uncertain period. That’s especially true if the homeowner was older. And even now, many older homeowners who were considering downsizing and selling their larger homes are still holding off.

Those larger family homes are the exact type of real estate young families, and millennials are looking for.

The Pandemic’s Domino Effect on the Real Estate Industry

COVID-19 had some surprising effects on the real estate industry. Thousands have fled the big cities like LA and NYC for the suburbs and small towns. And many of those relocating from the high-cost states of California and New York are cash buyers looking for a new property. With cash buyers moving to lower-cost states like Arizona, Texas, South Carolina, and Florida – competing in a bidding war can be hard.

Whatever the reasons for higher home prices, it can be discouraging for home shoppers trying to buy. But there still is hope for future homeowners.

Mortgage Forbearance Slowed Sales

And then there was mortgage forbearance. With a forbearance, in some instances, a borrower could pause their payments if they were affected financially by the pandemic. Homeowners getting some relief from their financial difficulties were less inclined to sell their home and move in these uncertain times.

The mortgage forbearance program applied to government loans like FHA, VA, USDA, and conventional loans with Fannie Mae and Freddie Mac. Although private lenders weren’t required to give forbearance, some did.

Wichter, Zach. “What Homeowners Should Know About Mortgage Forbearance.” Bankrate, 16 Feb. 2021, www.bankrate.com/mortgages/everything-you-should-know-about-mortgage-forbearance/.

Landlords Hit Hard by the Moratorium on Evictions

First, let’s define moratorium. The Cambridge dictionary defines it as a “stopping an activity for an agreed amount of time.”  You’ve probably heard of hiring moratoriums. Often these types of suspensions occur during times of financial hardship.

Because of the pandemic, since September 2020, there’s been a federal moratorium on evictions. Besides federal rules, there are state and county rules on evictions. Foreclosure and eviction orders vary from state to state and county to county. The law firm of Perkins Coie has put together a tracker for all 50 states that is very helpful.

Although millions of tenants received needed relief with this moratorium, it was extremely hard on smaller non-institutional landlords. And even though many landlords may have received mortgage forbearance, other expenses like taxes and insurance still needed to be paid.

It won’t be a surprise if some landlords decide to sell in the future. The last year has been hard on many who had tenants that were unable to pay rent. That put a heavy financial load on them because they couldn’t evict unpaying tenants. Selling in a strong market could be a good option. But some landlords may find it difficult to sell if they still have unpaying tenants they can’t evict. Because of that, we may see more foreclosures.

At the time of this article, the eviction moratorium is ongoing in certain counties. But there is a lot of uncertainty in this area. When those moratoriums are eventually over, there could be more properties for sale. However, no one can predict how soon.

“COVID-19 Related Eviction and Foreclosure Orders/Guidance 50-State Tracker.” Perkins Coie, 20 May 2021, www.perkinscoie.com/en/news-insights/covid-19-related-eviction-and-foreclosure-ordersguidance-50-state-tracker.html.

Sheffey, Ayelet. “There Are 40% Fewer Homes on the Market than Last Year, Report Finds.” Business Insider, Business Insider, 5 Apr. 2021, www.businessinsider.com/housing-inventory-real-estate-market-40-percent-fewer-homes-2021-4.

Brumer-Smith, Liz. “Eviction Moratoriums Keep Coming: Should Landlords Consider Selling Their Properties?” Millionacres, Millionacres, 8 Apr. 2021, www.fool.com/millionacres/real-estate-investing/articles/eviction-moratoriums-keep-coming-should-landlords-consider-selling-their-properties/.

How Rising Interest Rates Affect Home Prices

Rates won’t stay low forever, and when they start to increase, the market could slow somewhat. That would result in homes being on the market more days.

Although with a strong economy, slight rate increases don’t affect the market much. That’s because borrowers can still afford to take out a mortgage. What seems to affect the home prices the most is inventory.

That’s why expanding your search area is a way you can buy a home and still take advantage of low rates. Let’s look at some viable options for finding a home to purchase within your price range.

Are there affordable places to buy a home?

If you’re looking to buy in a large city and prices are too high – consider the suburbs. And if you want to spend even less, check out small towns. If you’re flexible on the location, you may find more affordable homes with less competition by expanding the area you're considering.

Keep in mind that one of the main ways to gauge the competition is – the number of days homes are on the market. If you can find an area where properties are taking longer to sell, you have a better chance of finding and closing on a home.

Realtor.com has some great tips on affordable alternatives to the big city. Check out these areas:

California Cities with More Affordable Alternatives

The median home price for California is $654,629. It’s gone up 12.5% over the last year.

  • Bakersfield is located between Fresno and LA. It has a surprisingly low median home value of $295,529.
  • Fresno is 206 miles from LA. Although values have increased 14.5% over the last year, the average home value is still low at $304,566.
  • Sacramento, the state capital, has a median home value of $425,810 and plenty of job opportunities.

Texas Cities with Affordable Homes for Sale

The median home price for Texas is $235,834. It’s gone up 10.7% over the last year.

  • Mabank is less than an hour from Dallas and has a median home value of $212,748.
  • West Columbia is about an hour from Houston, with a median home value of $202,402.

Florida Cities with Affordable Homes for Sale

The median home price for Florida is $282,894. It’s gone up 11% over the last year.

  • Clearwater is 40 minutes from Tampa, with a median home value of $266,460.
  • Gainesville is a popular college town with an average home value of $225,514.
  • Spring Hill has an average home value of $214,496, with an increase of 19% over the last year.

Arizona Cities with Affordable Homes for Sale

The median home price for Arizona is $333,965. It’s gone up 19.8% over the last year.

  • Phoenix home prices have gone up 21.6% over the last year, but the median value is still an affordable $328,883.
  • Tucson prices have increased 18.2%, but the average value is around $254,113.

South Carolina Cities with Affordable Homes for Sale

The median home price for South Carolina is $216,625. It’s gone up 10.5% over the last year.

  • Florence home prices have gone up 6.8% over the last year, but the median value is still an affordable $163,705.
  • Columbia’s values have increased 11.9% over the last year, but the median home value is still affordable at $164,679.

Zillow.com, www.zillow.com/ca/home-values/.

Ventiera, Sara. Priced Out of the Big City? Try These Nearby Affordable Alternatives. Realtor.com, 24 May 2021, www.realtor.com/news/trends/priced-out-of-big-city-affordable-alternatives/.

Why are people buying now?

One of the main reasons people are buying is that in many areas it’s cheaper than renting. Rents along with home prices are increasing. Who wouldn’t prefer to own than rent? Plus, several different types of mortgages have low down payments.

For example, with a VA loan – you can get into a home for 0% down. FHA is 3.5%, and conventional loan down payments range from 3% and up.

Some people were inclined or even forced to move because of the pandemic. But many homeowners have decided to remain in their homes until the pandemic is over.

When will home prices slow down?

Only time will tell when home prices start to decrease. But considering the pandemic is winding down, and the eviction moratoriums could be coming to an end, there’s hope more homes will come on the market. Plus, more sellers will feel comfortable putting their property on the market. Regardless, it’s smart to be flexible on the area you’re shopping in ­- and expand your parameters.

And here’s one final note. Don’t forget to be as prepared as possible financially and get pre-approved before you shop. That way when you make an offer, you’ll have a strong pre-approval letter from a trusted lender.

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