People who may be interested in purchasing a home are struggling to do so, as they find themselves confronting affordability issues that prevent them from even getting their foot in the door. The combination of a high cost of living plus stagnant wages have meant that many people cannot keep up with high home prices, preventing them from even being able to put a down payment on a home. This is having a depressive effect on the real estate market that is unlikely to stop until wages go up or prices come down.
Affordability Issues Depress Mortgage Demand
Many prospective homeowners have been kept out of the housing market due to difficulty affording the property. This is due in part to high housing prices, which have remained relatively high due to low inventory, keeping the price of new homes out of reach of many Americans. As a result, more than half of Americans have a dim view of their own chance at homeownership, believing they will never own a house themselves.
The Price of Low Wages and High Cost of Living
A major part of these affordability issues derives from issues outside the housing market, namely stagnant wages and a rising cost of living. Wages, on the whole, have not risen much over the past few decades, while prices for consumer goods and services have only gotten more expensive. This means that many buyers do not know if they will be able to afford the full price of a home, including the down payment and closing costs.
High Home Prices Keep Buyers at Bay
Another major factor is the issue of high home prices, which have remained high despite problems in the market. This is due in part to low inventory relative to the amount of demand, which has helped keep prices up thanks to aggressive bidding for the few properties on the market. High interest rates have also not helped, making it harder for buyers to obtain affordable mortgages for the properties they want.
Alleviating the Problems in the Market
Unfortunately, this situation is likely to continue until at least one of three things happens: wages start to increase significantly, the cost of living starts to come down, or housing prices come down. Until that happens, many prospective homeowners will be shut out of the market due to affordability. This, in turn, will limit the housing market’s growth potential, and further increase pessimism when it comes to people’s ability to one day become homeowners themselves.
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