For many young Americans, the dream of owning a home feels less like a middle-class milestone and more like a prize available only to those with family money or extraordinary incomes. The monthly mortgage payment on a median-priced home has increased 15% in the last year, while incomes have only increased by 4%. And even if mortgage rates fall in the next year, an increase in activity from buyers striking while the iron is hot would heat up competition and send prices up enough that affordability continues to degrade.
Barbara Corcoran, the renowned real estate mogul and television personality, cautioned, “the minute those interest rates come down, all hell’s going to break loose, and the prices are going to go through the roof.”
According to Corcoran, buyers will rush off the sidelines if interest rates drop significantly, creating a frenzy that could push prices to record heights.
Corcoran’s bad omen has left some young adults nihilistic about their housing future. Many feel they will be stuck renting forever without a viable way to buy their first home. In a TikTok clip of Corcoran’s comments, one user replied, “I should’ve bought a house at 7,” another user stated, “I’m adjusting my horizons to: I will rent until I’m 40 years old.” According to a recent Redfin survey, one in five Millennials believe they will never own a home. However, there are other options besides postponing or forgoing homeownership.
Here are four compromises to consider to buy your first home before affordability worsens further:
Reconsider Your Location
If you are priced out of your current neighborhood, don’t despair. There may be affordable homes in different areas that offer similar or even better amenities. A growing share of homebuyers is relocating to more affordable locations. They are leaving Los Angeles for Las Vegas, San Francisco for Sacramento and New York for Northport, FL.
Remote workers, in particular, have an advantage. The freedom to work from anywhere opens up possibilities to live in areas with a lower cost of living while maintaining their current job. Moving closer to family or friends can make you wealthier in intangible ways by sharing resources. Extended family can help with childcare, and a friend can give you a ride to the airport.
Start With An Investment
If you don’t want to live anywhere else, you can still buy without moving. You can continue to rent in your desired location while purchasing an investment property in an affordable area. That way you can start building equity that can be used towards a more expensive home in the future.
Take, for instance, Philip Garcia, who, while living in California, bought an investment property in his hometown of El Paso, which is one of the most affordable housing markets in the country. By renting out the El Paso property, he generated rental income and gained equity, which he was able to put towards buying additional homes including his current residence in Seattle.
“I spent my 20s living in very high-cost areas (Bay Area, Los Angeles) where I wasn’t in a position to buy,” said Garcia. “But I had always been interested in building wealth through homeownership. So I looked at the savings I had built up by the time I was 31 and identified a market where I could afford to buy a home to rent out and made it happen. The math all looked good, so I did it again and again. Now, the results are better than I expected, I have 3 cash-flowing assets that have appreciated well since I bought them.”
Reevaluate Home Style
If you’ve been priced out of owning your ideal home with a yard, garage and spacious interior, consider a more modest home. Single-family homes typically cost 20% more than townhomes and 29% more than condominiums.
There are upsides to choosing a townhome or a condo. Living in a dense, walkable area with transit, parks and restaurants might offer a healthier, more environmentally friendly lifestyle than a sprawling suburb. And although townhomes and condos don’t typically provide private yards or garages, they often come with shared amenities.
Team Up
Another strategy for affording homeownership is to find a partner to co-own with. You and your buying partner could live together as roommates, treat the property as a pure investment, or explore arrangements where one partner pays rent to the other for sole occupancy.
However, if you’re buying a home with someone you’re not married to, it’s imperative to establish a legally binding contract that outlines clear terms for sharing the property and a plan for dissolving the partnership if necessary.
In Conclusion: Stay Flexible
While the road to homeownership may seem steep, it’s not an unattainable dream. Aspiring homeowners can navigate the challenges and secure a home by adopting these strategies and staying vigilant in a rapidly changing market. The key is to remain flexible, resourceful and informed so you can easily navigate the twists and turns of the housing market.