While the average list price in America is rising, the amount of money American households can afford to actually purchase real estate has fallen by almost half over the past three years.
The news comes despite a recent report of widespread housing shortages across the country.
In August 2020, research found that the average amount the average American household could purchase a home for was $689,091.
In just three years – and after rising to a high of $737,392 in December 2020, that average purchasing power has halved to $356,273 in August 2023.
Conversely, the average list price for a home in August 2020 was $353,468, which was well within the reach of the average American.
While America’s average list price is rising, the amount of money American households can afford to actually purchase real estate has fallen by nearly half in the past three years
However, as purchasing power has fallen, list prices have only increased, reaching a new high last August of $446,924.
The numbers, according to NBC Newsdemonstrate a nightmare for Americans trying to invest in real estate.
“If you don’t get to six figures, it’s going to be very difficult,” said Lawrence Yun, chief economist for the National Association of Realtors.
Perhaps because of the need for real estate, despite rising mortgage rates, four million homes are still sold every month.
The solution for buyers is to borrow much more money than they did just a few years ago to buy a home.
Despite these challenges, people are still buying homes. About 4 million are sold every month. But to a shocking extent, rising mortgage rates and the shortage of homes for sale – fueling rising prices and bidding wars – have weakened their financial position.
People are borrowing significantly more money for homes today at much higher interest rates than they were just a few years ago. Overall, a homebuyer’s dollar is going about half as far as it did at the end of 2020.
Mortgage rates had dropped to 2.68 percent for a 30-year mortgage in December 2020, but as of last month, the numbers have risen to a shocking 7.63 percent, according to Fannie Mae.
The average mortgage payment on a newly purchased home is now over €2,000 per month, while three years ago this was only €1,100.
Rising interest rates mean homeowners stuck in cheap mortgages don’t want to sell.
This in turn drives property prices up, meaning buyers face the least affordable market since 2006.
According to the real estate company, pending home sales are down 13 percent compared to a year ago Redfinand total home sales are down 16 percent year-over-year through September.
And the housing shortage is most acute in the price ranges that middle-income buyers can afford, the paper said National Association of Real Estate Agents.
Joel Efosa, CEO of Home Buyers Fire cash buyersowns several properties, including those in Dallas, Texas and Orlando, Florida.
“Recently I have noticed a significant increase in inquiries from real estate agents looking to purchase these homes,” he told DailyMail.com.
“I receive weekly mailings, and sometimes even phone calls, urging me to consider selling due to high demand and skyrocketing property values.”
His Dallas property, which he bought a few years ago for $200,000, is now appraised at nearly double that amount, he said.
“It’s clear that the housing shortage is creating a seller’s market – and real estate agents are keen to take advantage of that,” he added.
It comes after a Bank of America (BofA) analysis identified Dallas, alongside San Antonio and Houston, as one of four cities facing the worst real estate shortages in the US.
The list was completed by Orlando, Florida, which also has high population growth and low housing inventory.
BofA analysts tracked internal data from the second financial quarter of the year to assess where property markets were hottest and coldest
According to BofA, the areas with the greatest housing problems were due to their booming labor markets, which are increasing their population growth.
In Dallas, for example, the number of people on the nonfarm payroll has increased 14 percent since January 2019. In Orlando, this figure has increased by 10 percent.
At the national level, non-farm labor costs have increased by only 4 percent in relative terms.
Widespread shortages in ‘hot’ areas have caused home prices to skyrocket, with Orlando seeing home values rise 58 percent in June 2023, compared to 2019.
Similarly, in Dallas, homes had increased in value by 29 percent. But researchers said San Antonio’s real estate market has begun to “soften” despite the shortages.
However, there are still parts of the US that are less affected by shortages.
On the other end of the spectrum, St. Louis, Detroit and Miami were found to have the highest housing inventory relative to their population.