The unfortunate truth about today’s inflation rates – your house is probably making more money than you are.
Online real-estate marketplace company Zillow crunched two different government (BLS and Census) data sets and concluded that homes across the country increased in value by almost $2,700 more than the typical American’s income.
That’s great news for those who currently own a home but terrible for renters.
Zillow has been doing this kind of research for over a decade, but it’s not the only one. If you put the puzzle of data pieces together, you can see why year after year there are fewer first-time homebuyers:
- Housing inventory won’t bounce back for two years.
- People with multiple homes drive up prices.
- Rent hikes make it harder to save for a downpayment on a home.
- Supply chain issues are increasing construction costs.
Let’s break this down further…
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First-time homebuyers: an endangered species
New homeowners are dropping like flies, according to Zillow’s latest research. The number of first-time buyers on the market has shrunk significantly over the past couple of years and that trend is likely to continue through this year.
Back in 2019, first-time homebuyers made up 45 percent of all buyers. In 2021, that dropped to 37 percent.
Some experts don’t even think that the number of first-time homebuyers will return to pre-pandemic levels by 2030. That’s bleak, but some people are a bit more hopeful. A quarter of the surveyed experts think America could reach 2019’s numbers by 2024 or 2025.
The force driving away new buyers? Low inventory. The number of homes on the market every month has dropped by thousands since the pandemic.
Experts are more optimistic about housing inventory than they are about the number of first-time buyers with most projecting that the supply will bounce back between 2023 and 2025.
“Inventory and mortgage rates will determine how far and how fast home prices will rise this year and beyond,” said Jeff Tucker, Zillow senior economist. “We are seeing new listings returning to the market, slowly, as we enter the hottest selling season of the year, but this supply deficit is going to take a long time to fill.”
Find out: What’s the True Cost of Homeownership in 2022?
Those who can are relocating and reinvesting
The divide between the haves and have-nots, as Bachaud described it, is fairly obvious when it comes to buying a home. Those with more resources are buying property as a way to make passive income – while people without the extra money have been forced out of their hometowns into cheaper areas.
Redfin, a real estate brokerage, found that home prices have gone up 16 percent since a year ago. And the Americans who aren’t able to keep up with rising prices have been forced to pick up and move, with many taking advantage of remote work.
In fact, people are relocating at record rates. Thirty-two percent of movers are relocating to new cities, compared to about 25 percent in 2019. Redfin also found that most homebuyers are migrating to Miami, Phoenix, and Tampa – pricing out the locals who already lived there.
Heather Mahmood-Corley, a Redfin agent in Pheonix, said that corporations and individuals see the areas as investment opportunities or “side hustles.” In her experience, they rent off their condos in other major cities and use the money to buy a home in Pheonix.
“With out-of-towners driving up home prices in Phoenix, a lot of local first-time buyers have bowed out of the market,” Mahmood-Corley said. “They just don’t have the cash to compete, especially when there’s such limited inventory. Oftentimes, the only homes that are both available and affordable are too far out of town for them.”
Find out: How to Buy a House with Bad Credit
Americans are unprepared to tackle the competitive market
Most first-time buyers on the market are overwhelmed by housing prices, but their anxiety hasn’t inspired them to prepare.
People are more likely to have started touring homes than they are to have spoken with a mortgage lender, according to TD Bank’s research.
“You have to start conversations with your mortgage lender as soon as possible,” said Steve Kaminski, the head of U.S. Residential Lending at TD Bank. “They can help first-time buyers find out how much they can afford, what mortgage options exist, and level-set before they begin their search.”
Buyers aren’t giving themselves the leg-up that they need. While 81 percent of people with low-to-moderate income cite the downpayment as the biggest barrier to homeownership, more than half of all first-time homebuyers haven’t started saving for it.
They also haven’t established a new budget to account for all the fees that come with a new home like utilities, insurance, Homeowners Association fees, and maintenance.
But the housing market is competitive, and sellers are going to take the highest bidders who already have their paperwork in order.
“Whether you enter now or in a few months, you’re going to be faced with a competitive market,” Kaminski said. “If first-time homebuyers want to ease anxieties and succeed, it’s imperative that they prepare.”
Find out: 10 Money Strategies for Buying Your First Home
Construction costs aren’t cheap
While they aren’t housing hunting anymore, homeowners still feel the weight of inflation. Many people are pushing through home renovations despite the fact that the necessary supplies are low in stock and increasingly expensive.
Nationwide conducted a study and found that 77 percent of homeowners are currently working on a remodeling project or are planning to.
Most remodelers set a budget of $5,000 – which will get tighter as construction companies foresee more price increases throughout the year.
“Nationwide’s study found most homeowners who completed major remodels in 2021 faced significant obstacles brought on by supply chain and inflation issues, such as higher material and labor costs, delayed timelines, and limited material availability,” said Cathy Allocco, Nationwide’s vice president of small commercial sales and distribution.
Just because a home is being updated, doesn’t mean it’ll be back on the market anytime soon. Forty-four percent of homeowners said they will not consider putting their house up for sale once the renovations are done.
Because they aren’t rushing to sell, owners are willing to do what it takes to prevent price hikes. Forty percent are open to signing a contract with construction groups to lock in prices even if they have to wait months to actually start the project.
Construction businesses have seen an uptick in demand for remodeling jobs and have struggled to keep up. To try and beat the issue, many started paying their employees more to retain their skilled workers.
Even though labor and supply costs are getting more expensive, most homeowners don’t plan on canceling their remodeling projects.
Find out: 6 Costs to Consider When Buying a Large vs. Small House
