As a housing counselor, you might think my heart soars when I read headlines like this from the New York Post, “Home prices post record drop as buyers rush back into a suddenly ‘cheaper’ market.”
Instead, my stomach drops.
Sure, “The national median listing price fell 2.4% in May from a year earlier.“ But it dropped to $429,500. That’s still more than most Americans can afford.
Don’t believe me? Let’s do the math…
- The average U.S. salary according to the federal government is 69,846.57. So let’s round that up to $70,000.
- A new home should cost no more than 3 to 4 times your gross annual salary.
- On the high end, that means a new home should cost $280,000.
So home prices need to drop nearly $150,000 to be considered truly affordable.
Starter sticker shock
Yet there are now hundreds of cities where a typical starter home costs $1 million or more.
“A typical ‘starter home’ is defined for this analysis as a home in the lowest third of home values in a given region,” says real estate firm Zillow, which just released a study on the issue.” The count of cities with million-dollar starter homes has grown and has nearly tripled since before the pandemic – rising from 80 in February 2020 to a record 242 today.”
You read that right. In 242 cities, you need $1 million to buy a home in the lower third of prices in that market.
I’m sure you can guess the top two cities: Los Angeles and New York City. But besides California and New York, there are 24 other states that have the same problem. Texas, for instance, has seven such cities. South Carolina has three. Wyoming has a pair, too.
“The pandemic reset the cost of buying a home, spreading million-dollar starter homes from a handful of coastal states to more than two dozen states across the country,” says Kara Ng, senior economist at Zillow.
How to still buy a home
While that Zillow study is shockingly depressing, another one by Lending Tree is shockingly encouraging…
Many borrowers still don’t compare offers or negotiate mortgage terms. Two-thirds (66%) of mortgage holders compared quotes from multiple lenders during their most recent mortgage-shopping process, but only 54% attempted to negotiate.
That’s right. You can negotiate your mortgage rates. Those rates aren’t like buying food at a grocery store. They better resemble buying a car from a dealer. You can haggle. And it can save you tens of thousands of dollars.
“Borrowers could save an average of $62,572 over the life of a 30-year, fixed-rate mortgage by shopping around,” LendingTree says. “That’s equal to $174 per month or $2,086 annually.”
Buying a home is so complicated, shoppers often lose out of big savings because they don’t know how the process works. That’s why housing counseling is more important than ever.
Consolidated Credit is part of a national network of nonprofits that offer a slew of programs for motivated but confused homebuyers. We’re certified by the U.S. Department of Housing and Urban Development (HUD), which allows us to decipher the complex homebuying process. Best of all, calling us for a consultation is free.
