How to find an affordable home
May 20, 2021 8:21 AM
Finding a house to buy is tricky today. Finding one that’s affordable to both buy and support the costs of long-term ownership is even trickier. Inventory is tighter than ever , and home values have risen extremely fast in the past year.
The median home price of more than $278,000 in the first quarter of 2021 is one of the highest since the last housing cycle peaked at $215,000 in the third quarter of 2006, according to Attom Data Solutions.
In addition to finding a home at the right price point, a number of factors will help to determine how easy it is to land one — and competition is tough across the country. In April,72% of listings nationwide received multiple bids within a month.
Nevertheless, there are deals to be found, and now may be the time to act, given that mortgage rates are expectedto move upward again.
“In general terms, there are some places where buyers with very limited financial resources can look for bargains and affordability,” said Todd Teta, chief product and technology officer at Attom. “If you find the right house, now would be the right time to buy it.”
Below experts present a few important but below-the-radar (for some) considerations to have in mind while casting your net for a new home.
The median home price of more than $278,000 in the first quarter of 2021 is one of the highest since the last housing cycle peaked at $215,000 in the third quarter of 2006, according to Attom Data Solutions.
In addition to finding a home at the right price point, a number of factors will help to determine how easy it is to land one — and competition is tough across the country. In April,
Nevertheless, there are deals to be found, and now may be the time to act, given that mortgage rates are expected
“In general terms, there are some places where buyers with very limited financial resources can look for bargains and affordability,” said Todd Teta, chief product and technology officer at Attom. “If you find the right house, now would be the right time to buy it.”
Below experts present a few important but below-the-radar (for some) considerations to have in mind while casting your net for a new home.
Start by investigating the locales that have the lowest prices in the country
For people with remote work situations that will persist post-pandemic, the lowest-priced metropolitan areas may look attractive.
Several U.S. metros with populations of 200,000 or more offer median home prices below $200,000.
For example: The top five going into 2021 were Scranton, Pa. at $120,000; Peoria, Ill. at $125,000; Mobile, Ala. at $129,000; Davenport, Iowa and Moline, Ill. at $129,000; and Kingsport, Tenn. and Bristol, Va. at $135,000 according to Attom data.
However, it’s unclearhow much remote work will become permanent . Interstate tax issues can be deterrents for small businesses to allow remote work since they can create an additional tax liability.
Also, some businesses that will allow remote work going forward are looking to pay employees based on where they live. Housing values have generally risen more quickly than local wages. That means a home might not look as affordable over time, particularly in a case where a formerly remote worker ends up having to work locally later.
“What’s really happening in this market right now, both nationally and regionally, is that places where prices are running up are generally just outpacing wage growth, and there are some counties where it’s a significant difference,” Teta said.
Several U.S. metros with populations of 200,000 or more offer median home prices below $200,000.
For example: The top five going into 2021 were Scranton, Pa. at $120,000; Peoria, Ill. at $125,000; Mobile, Ala. at $129,000; Davenport, Iowa and Moline, Ill. at $129,000; and Kingsport, Tenn. and Bristol, Va. at $135,000 according to Attom data.
However, it’s unclear
Also, some businesses that will allow remote work going forward are looking to pay employees based on where they live. Housing values have generally risen more quickly than local wages. That means a home might not look as affordable over time, particularly in a case where a formerly remote worker ends up having to work locally later.
“What’s really happening in this market right now, both nationally and regionally, is that places where prices are running up are generally just outpacing wage growth, and there are some counties where it’s a significant difference,” Teta said.
Zero in on areas with minimal gaps between local wages and home costs
While homes priced below $200,000 may seem like a bargain to remote workers looking to parachute into a region outside a metropolitan area, they and traditional workers need to take the local cost of living and wages into account.
Based on the gap between local wages and home prices, houses under $200,000 have been growing less affordable and homes priced as high as $400,000 or $500,000 in other markets actually look attractive relative to local wages.
For example, in the first quarter, one of the five counties where median prices compare most favorably to local wages is Morris, N.J., at $472,417.
That gives it the same affordability value on Attom’s index as counties such as Portage, Ohio, $145,000; La Porte, Ind., $147,400; Pulaski, Ark., $154,900 and Newcastle, Del., $232,000.
All these areas had top index values of 126, indicating they were the most affordable in the country during the first quarter. Values below 100 on the index signify prices are less affordable than the historic average for the region.
Based on the gap between local wages and home prices, houses under $200,000 have been growing less affordable and homes priced as high as $400,000 or $500,000 in other markets actually look attractive relative to local wages.
For example, in the first quarter, one of the five counties where median prices compare most favorably to local wages is Morris, N.J., at $472,417.
That gives it the same affordability value on Attom’s index as counties such as Portage, Ohio, $145,000; La Porte, Ind., $147,400; Pulaski, Ark., $154,900 and Newcastle, Del., $232,000.
All these areas had top index values of 126, indicating they were the most affordable in the country during the first quarter. Values below 100 on the index signify prices are less affordable than the historic average for the region.
Consider states where property taxes rates are low
Property taxes are another cost budget-conscious house hunters need to consider, particularly given that they — like home prices — soared last year and could become less affordable as time goes on.
At $3,719, the average property taxes paid on a single-family home in the United States last year was up 4.4% from $3,561 in 2019, marking the largest increase seen in the past four years. In some regions, they top $10,000.
While property taxes may not seem like a prominent cost consideration, a lot rides on homeowners’ ability to pay them in the long run. Tax liens typically outrank all others on a property, and when they go unpaid, people can lose their homes. On the other hand, areas with low local property taxes may have fewer social services available.
The lowest average property taxes are found in the following low-price states: Alabama, $841; West Virginia, $849; Arkansas, $1, 147; Tennessee, $1,202; and Mississippi, $1,241.
However, those aren’t where the lowest effective tax rates are. Those are found in Hawaii, 0.37%; Nevada, 0.6%; Idaho, 0.61%; Arizona, 0.62%; and Wyoming, 0.63%.
In comparison, the average effective tax rate of 1.1% in the United States last year.
At $3,719, the average property taxes paid on a single-family home in the United States last year was up 4.4% from $3,561 in 2019, marking the largest increase seen in the past four years. In some regions, they top $10,000.
While property taxes may not seem like a prominent cost consideration, a lot rides on homeowners’ ability to pay them in the long run. Tax liens typically outrank all others on a property, and when they go unpaid, people can lose their homes. On the other hand, areas with low local property taxes may have fewer social services available.
The lowest average property taxes are found in the following low-price states: Alabama, $841; West Virginia, $849; Arkansas, $1, 147; Tennessee, $1,202; and Mississippi, $1,241.
However, those aren’t where the lowest effective tax rates are. Those are found in Hawaii, 0.37%; Nevada, 0.6%; Idaho, 0.61%; Arizona, 0.62%; and Wyoming, 0.63%.
In comparison, the average effective tax rate of 1.1% in the United States last year.
Look for large middle-income populations
A market may look like a good prospect for middle-income buyers if it has a median home price in their range. However, that indicator can obscure the number of neighborhoods that are actually attainable within a market.
To get a better sense of the extent to which a region offers significant choices, Urban Land Institute’s Terwilliger Center analyzed multiple data sources for its Home Attainability Index, a compilation of some of the more nuanced supply and socioeconomic factors that affect access to housing and opportunity.
ULI examined the percentage of households living in “middle-income neighborhoods,” using a methodology from a Brown University study. A middle-income neighborhood was defined as having a median income that fell between two-thirds of and one-and-a-half times the regional median. Such neighborhoods were considered comparatively attainable because they were either moderately priced or offered a wide range of price points
“The higher the number, the greater proportion of the population lives in what we consider to be a financially integrated neighborhood,” said Michael Spotts, the lead researcher for the index.
For example, while Houston is less expensive than some of the other most populous, economically vibrant cities, it has among the lowest percentages of households living in middle-income neighborhoods at 55%. Conversely, Portland, Ore. is considerably more expensive relative to income, but more than three-quarters of households live in more economically integrated neighborhoods.
To get a better sense of the extent to which a region offers significant choices, Urban Land Institute’s Terwilliger Center analyzed multiple data sources for its Home Attainability Index, a compilation of some of the more nuanced supply and socioeconomic factors that affect access to housing and opportunity.
ULI examined the percentage of households living in “middle-income neighborhoods,” using a methodology from a Brown University study. A middle-income neighborhood was defined as having a median income that fell between two-thirds of and one-and-a-half times the regional median. Such neighborhoods were considered comparatively attainable because they were either moderately priced or offered a wide range of price points
“The higher the number, the greater proportion of the population lives in what we consider to be a financially integrated neighborhood,” said Michael Spotts, the lead researcher for the index.
For example, while Houston is less expensive than some of the other most populous, economically vibrant cities, it has among the lowest percentages of households living in middle-income neighborhoods at 55%. Conversely, Portland, Ore. is considerably more expensive relative to income, but more than three-quarters of households live in more economically integrated neighborhoods.
Seek out a manageable commute
Remote workers may have forgotten the expense involved in getting from point A to point B amid the pandemic, but essential workers haven’t. And with vaccines out and social distancing rules lifting, it’s about to become a more widespread concern.
“Consider the tradeoff if you’re looking at a ‘drive ‘til you qualify’ market,” said Spotts. “Those are areas where there may be low-cost homes, but you have to factor in a commute and the associated expense, and possibly whether you’ll be car-dependent.”
Among the ways ULI measured this was to look at areas where there were relatively small percentages of residents with a commute of more than one hour. These regions tend to be less populous. Examples include Tallahassee, Fla., 2.6%; and Oxnard, Calif., 2.65%. Among the 25 most populous regions, Seattle, St. Louis, and New York City have the smallest proportions of “super-commuters” with long trips to work. Factors that can drive shorter commutes include strong transit access and housing that is located relatively near to job centers.
“Consider the tradeoff if you’re looking at a ‘drive ‘til you qualify’ market,” said Spotts. “Those are areas where there may be low-cost homes, but you have to factor in a commute and the associated expense, and possibly whether you’ll be car-dependent.”
Among the ways ULI measured this was to look at areas where there were relatively small percentages of residents with a commute of more than one hour. These regions tend to be less populous. Examples include Tallahassee, Fla., 2.6%; and Oxnard, Calif., 2.65%. Among the 25 most populous regions, Seattle, St. Louis, and New York City have the smallest proportions of “super-commuters” with long trips to work. Factors that can drive shorter commutes include strong transit access and housing that is located relatively near to job centers.
Find the shortest route to saving up for your own place
The road to first-time homeownership can be a long one in the current market, given its high prices. Even in areas where incomes are higher, accumulating savings for a downpayment can represent a significant barrier.
The ULI Home Attainability Index included an illustrative analysis of the amount of time it would take a household earning 80% of the region’s median income to save for a home purchase. At this income level, saving for a 10% down payment and 3% closing costs could take as much as seven years even in the least expensive market (Detroit).
As home prices in the largest regions have climbed, increased attention has been paid to mid-sized markets. Among those “second tier markets” (ranked 26-50 based on the total number of households), only Cleveland, Pittsburgh, Indianapolis, and Cincinnati had savings estimates of fewer than ten years.
Where homeownership is out of reach, people stay inthe rental market , driving up costs, and making saving for a home even more difficult.
Spotts indicated that rising costs can exacerbate inequality.
“Research also suggests that white households are more likely to receive family support in the purchase of a first home. In this way, limiting the ability of past generations of Black and other minority households to earnequity through homeownership has a carryover effect on the present generation. Rising home prices only exacerbate this challenge,” he said.
The ULI Home Attainability Index included an illustrative analysis of the amount of time it would take a household earning 80% of the region’s median income to save for a home purchase. At this income level, saving for a 10% down payment and 3% closing costs could take as much as seven years even in the least expensive market (Detroit).
As home prices in the largest regions have climbed, increased attention has been paid to mid-sized markets. Among those “second tier markets” (ranked 26-50 based on the total number of households), only Cleveland, Pittsburgh, Indianapolis, and Cincinnati had savings estimates of fewer than ten years.
Where homeownership is out of reach, people stay in
Spotts indicated that rising costs can exacerbate inequality.
“Research also suggests that white households are more likely to receive family support in the purchase of a first home. In this way, limiting the ability of past generations of Black and other minority households to earn
