With house prices soaring in 2022, buyers may feel they have only two chances to get a new property — slim and no chance.
“Because of rising prices in 2020 and 2021, middle-class Americans have been wiped out,” said Builder Magazine contributing editor Kevin Oakley.
Oakley pointed to interest rates as the main culprit, but people who can afford a home in March 2022 can still buy a home — in most cases — using the mortgage options available today. But it’s not easy.
“As interest rates rise throughout the year (they will continue to rise until inflation is contained), this could lead to affordability issues for a second wave of even upper-class home buyers,” he said.
The ‘Most Affordable’ U.S. Cities
This can be avoided if buyers wish to expand their real estate horizons.
One way to do this is to move to a cheaper city. After all, homebuyers won’t necessarily choose cities with staggering housing prices due to the legions of U.S. professional professionals working from home.
Where are those affordable real estate landing spots?
Realtor.com has released a new list of cities where you can find a good home for $72,000 a year.
Assuming a middle-class income of $72,000, an average listing price of $280,000 (38% below the June 2022 U.S. median price of $450,000), a 10% down payment, and a 30-year fixed mortgage rate of 5.25%, Realtor . com ranks these cities as the most affordable for the American middle class.
Youngstown, Ohio Median home price: $129,900 Percentage of homes affordable to middle-class buyers: 85.5%
Scranton, Pennsylvania. Median home price: $215,000 Percentage of homes affordable to middle-class buyers: 72.3%
Syracuse, NY Median home price: $199,900 Percentage of homes affordable to middle-class buyers: 70.3%
Wichita, Kansas Median home price: $265,000 Percentage of homes affordable to middle-class buyers: 63.3%
McAllen, TX Median home price: $260,000 Percentage of homes affordable to middle-class buyers: 58.8%
St. Louis, MO Median home price: $273,900 Percentage of homes affordable to middle-class buyers: 58.5%
Detroit, Michigan. Median home price: $249,900 Percentage of homes affordable to middle-class buyers: 57.4%
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Little Rock, AK. Median home price: $279,900 Percentage of homes affordable to middle-class buyers: 56.5%
Tulsa, OK Median home price: $295,000
Share of affordable homes for middle-class homebuyers: 56.5%
Louisville, KY Median home price: $289,900 Percentage of homes affordable to middle-class buyers: 54.2%
Choose – but don’t chase – the right home
There is no one-size-fits-all answer to when to enter the market, especially now. That said, keeping a close eye on your preferred market and gaining insight into the specific community of interest can make a big difference.
“Demand, inventory and affordability can vary widely between markets,” said Robert Heck, vice president of Morty Mortgage in New York.
“The continued decline in inventory suggests that current mortgage rates are not having a significant impact on the local market, while the increased inventory suggests rising rates and market conditions have begun to soften demand, meaning buyers may have more leverage.”
Heck has these specific tips for home buyers in 2022.
Make a budget if you haven’t already. As a future homeowner, it’s going to be important to have a budget and save money for things like home maintenance, not to mention that it’s nearly impossible to find ways to save money if you don’t know how your family spends their money.
“While the idea of creating a budget can be daunting, it doesn’t need to be complicated,” Heck said.
“Start by looking at your household’s income, minus ongoing bills and expenses, and then divide the remaining expenses into categories that make sense for your household.”
Evaluate and eliminate large monthly expenses. Start by thinking about how to reduce the biggest expenses first. Can you rent a smaller or cheaper apartment to keep your family comfortable while saving for your future home? Do you or your partner’s parents have a house big enough for your family to live comfortably for a few months?
“Maybe you can give up the vacation or put off buying a car for a few years,” Heck noted.
Be strategic about your down payment. No matter how you look at it, a down payment on a home will be a substantial amount.
“Once your family has saved money, it’s time to think carefully about how best to use it to meet your financial needs,” Heck said.
“The traditional 20% down payment on a new home means mortgage insurance” — insurance that protects mortgage lenders in the event a borrower can’t make their mortgage payments — “is not required.”
But of course, each family’s financial situation is unique.
“In some cases, it may make more financial sense to have a smaller down payment and opt for mortgage insurance, so consider what you can do with that money if you pay a smaller down payment and keep the difference,” Heck adds.