The Housing Market Is Unsustainable for Families
Families face a perfect storm of rising inflation, a potential recession, and stubbornly high home prices. Experts say finding the right home is still possible.
When Nicole Thelin's family sold their Olympia, Washington, home in order to relocate closer to family in Utah, they assumed buying a new home would be a relatively straightforward process.
Thelin and her husband, who's a disabled veteran, began shopping with the help of a realtor. Three years down the road, the couple, who have five children, still have not been able to find an affordably-priced home. "We are absolutely stuck. I do not know if—or when—we will be able to buy a home again," says Thelin. The family is now in a rental and never realized they'd be home shopping amid a perfect storm: limited inventory, sky high prices, and soaring interest rates. Not to mention a marketplace where bidding wars and all-cash offers continue to be standard operating procedure in many places, even as the COVID-19 pandemic tapers.
"Even beyond the outrageous prices and the unrealistic expectations that sellers have, which make it impossible for families to purchase a home, it seems that purchasing a house sight-unseen is the norm and that's disastrous for families who have specific housing needs," says Thelin, whose husband's disabilities require an ADA accessible home.
The Thelin family's experience is simply one variation on what's become a familiar theme among home-shopping families across America.
The overly competitive nature of the real estate market in recent years, with its steep prices and intense, blink-and-you-miss-it home buying opportunities, is hardly ideal for families and their unique needs.
Add the more recent challenge of rapidly increasing interest rates and the pressures of record inflation on the family budget and suddenly buyers are being pushed out of the market altogether. Or at the very least, being forced to postpone home buying until market conditions soften just enough to bring buying conditions back within reason.
And for those still daring to navigate this daunting market, successfully landing a home is like finding a needle in a haystack. But experts say there are still strategies that could work for families now.
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<strong>Data Paints a Bleak Picture</strong>
As of mid-October, mortgage interest rates had surged to their highest levels in 20 years, Realtor.com reports. For the week ending October 13, rates for a 30-year fixed mortgage reached an average of 6.92%. That's more than double last October. Home prices, meanwhile, also remain relatively high. They were up 13.5 percent year-over-year as of August, according to CoreLogic.
"At today's rates and home prices, buyers who purchase a home are paying about 80% more for the same house than if they had bought at the same time last year," Realtor.com reports. "And the higher rates go, the more Americans will be priced out of homeownership. This could be because they can no longer qualify for mortgages or they can't make the math work on the higher housing payments."
Inflation is yet another challenging piece of the economic puzzle. As of September, according to the Consumer Price Index, inflation had risen to 8.2% year over year.
"Consumer prices are now at a 40-year high, and parents are feeling that in their wallets and their pocketbooks. Inflation impacts their paychecks, their savings and their budgets," says Joe Moshe, broker and owner at Charles Rutenberg Realty in Plainview, New York. "If families have to pay more for groceries and other necessities, they will not have that extra money to put aside for a home purchase."
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<strong>Racial Disparities in Homeownership Rates Are Worsening</strong>
Earlier this year, the National Association of Realtors (NAR) published the 2022 Snapshot of Race and Home Buying in America, a report that underscored the fact that racial disparities not only continue to exist but are worsening in some cases.
In particular, the NAR data showed that 2020 was one of the best years for the housing market, with the U.S. homeownership rate climbing to 65.5%. Despite this fact, the home ownership rate for Black Americans is just 43.3%, which mirrors rates in the 1960s, when private race-based discrimination was legal. For white Americans meanwhile, the home ownership rate reached a decade-long high in 2020 at 72.1%, as it also did for Asian Americans (61.7%) and Hispanic Americans (51.1%).
“Unfortunately, Black home buyers are typically purchasing with lower household incomes, more student loan debt, and are less likely to receive family down payment assistance compared to white home buyers,” says Jessica Lautz, NAR’s vice president of demographics and behavioral insights. This reality is a legacy effect of historical discriminatory redlining policies and housing segreation. Racism continues to exist in the housing market and presents in similar ways, including the devaluation of Black assets.
Because of these systemic issues, “when Black renters are renting, they are paying a disproportionate amount of income to rent versus white renters, which further erodes their ability to save for a home,” Lautz adds. “All of these factors have compounded and are exacerbated when a Black home buyer is facing tight housing inventory, watching home prices rise, and watching interest rates increase—reducing housing affordability.”
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<strong>Families Are Feeling The Impact</strong>
In Fort Worth, Texas, where Hayden Lyon and his wife Ana have been on the hunt for a home to accommodate their growing family, the market has slowed somewhat recently amid the interest rate hikes, but multiple offers on homes continue to be commonplace, as are all-cash offers.The couple, who have one child and are planning for more, is currently trying to decide whether it makes more sense to move farther away from their workplace to find a more reasonable price, or stay closer to work in Fort Worth, where they would have to sacrifice space needs to stay in budget.
"It does get exhausting after a while, especially when you spend time writing up an offer and then you get told you were in second place but lost to an all-cash offer. Additionally, rising interest rates have significantly reduced our buying power and thus our home size and location options," adds Lyon, whose budget is between $500,000 to $700,000. "We've really had to take a step back and evaluate our budgeting and determine what the best plan is for getting to our next house."
In Orange County, California, conditions aren’t much better. Anh Abatzoglou and her husband, who have three children, have been trying to find a home for less than $600,000 near their children’s school. The Abatzoglou children attend a public Mandarin immersion school that’s one of only two such schools in the entire county. “Because of the location of the kids’ school in Laguna Niguel, most of the homes around the school are priced on the higher end,” explains Abatzoglou.
The family initially set out looking for a three-bedroom home, so their son and two daughters wouldn’t have to share a bedroom. But that proved cost prohibitive, so “we sacrificed our plans for a third bedroom to get closer to the school,” Abatzoglou explains. “While the kids are all young, they can share. Then we’ll use the living room for our son, and the second bedroom for our girls.”
But even that scaled-back plan has proved impossible amid current market conditions. The family recently put an offer in on a two-bedroom home, but were outbid. For now, the family has paused their search. “Because interest rates have gone up so much, we’re looking into renting,” Abatzoglou says. “It’s just too much. The cost to buy is now double what we would have paid if we had bought a home at the beginning of the year.”
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<strong>Experts Urge Families Not To Lose Hope</strong>
Sandra Tobon works as director of housing counseling and community outreach at the nonprofit Consolidated Credit outside of Miami, Florida, where part of her role is helping low-income Americans buy their first home. “Families are doing everything they're supposed to do. They pay off their credit cards, they get pre-qualified for a mortgage, but with the amount of money they qualify for, they cannot buy anything," says Tobon.
But Tobon says if there's one message she wants to impart it’s that even in this market, buying a home remains possible. "That's especially true because rents are also increasing as fast—or even faster than—home prices,” she says, which is making renting equally unaffordable and unsustainable. “So, in a twisted way, buying a home might actually be cheaper than renting in the long run."
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<strong>How Families Can Make Homeownership a Reality</strong>
For families on the market, there are still smart strategies that might still help them land the home of their dreams.
Review all of the potential options and homebuying scenarios.
Perhaps your employer will allow you to work remotely and your home search can be widened to include less expensive zip codes, she says. Or perhaps the market might change slightly later this year, or next year. In the meantime, Tobon advises clients to remain prepared to buy. "I tell people to keep up with their finances and savings, and stay financially fit, because things might change later on this year or next year and I want them to be ready for that," Tobon says.
Cohousing offers another path to home ownership
Holly Harper, a divorced single mom, offers yet another option for navigating the current market. The divorced single mother, who lives in the Washington D.C. area, made a joint purchase of a four-unit home with another single mother. Each of the moms has her own three-bedroom condominium in the home, and they have rental units available as well that can generate income. "Both of our names are on the mortgage and we share all expenses," says Harper, who has written a book about her experience called Co-Housing: A New Rule Book for Finding Refuge. "What we learned, during the pandemic especially, is that the way families in the U.S. live can be isolating. And when you're isolated, everything is on your plate to handle all alone," says Harper. By sharing their space and their lives the two women are reaping many benefits—including all of their costs going down.
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Don't buy beyond your means.
"Families shouldn't stretch their budgets too far to become homeowners," Clare Trapasso, deputy news editor for Realtor.com tells Parents."Inflation is still high and they want to be prepared if the nation does succumb to a recession. No one wants to be house poor."
Adjustable rate mortgages or ARMs may also be worth considering amid current conditions. ARMs provide a decreased monthly mortgage payment because they offer a lower initial interest rate compared to a more traditional 30-year fixed interest rate mortgage. This can be a more affordable way to enter the market, especially if you're not planning to remain in a home for your entire adult life, suggests Arun Mohan, director of product for Credit Karma's home and mortgage business. "ARMs are gaining popularity again as buyers look for ways to decrease their monthly payments. Zillow reported that more than 12% of borrowers applied for ARMs in June and July, the highest percentage since August 2007."
Buying may not be the right choice for every family.
“Homeownership is definitely not for everyone, particularly nowadays. As interest rates have begun to rise to levels not seen since before the 2008 economic meltdown, the cost of homeownership has risen significantly,” says Barry Rothman, housing counseling manager with Consolidated Credit.
And while rents are also steep in today’s market, the overall cost of renting may still be less to deal with then home ownership when you factor in such things as the downpayment needed for a home purchase and the cost of maintaining a home. “For the homeowner, if the air conditioning unit fails, or the refrigerator, or the water heater, they have to come up with that money in order to effect needed repairs or replacements,” says Rothman.
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