Housing Affordability Is at Historic Lows. 4 Things to Try if You're in the Market for One

Housing prices have skyrocketed over the last several years, in part due to there being fewer homes on the market. This has been great news for sellers, but it's made life even more difficult for home buyers. The median real home value reached a record 4.6 times higher than the median real family income in 2022, according to the Federal Reserve's latest Survey of Consumer Finances. That's a tough pill to swallow if you're already struggling to keep up with your bills.

Obviously, everyone's situation is unique. But here are four things worth considering if you're in the market for a new home right now.

1. Get pre-approved for a mortgage

A mortgage pre-approval is essentially where a bank looks at your finances and tells you how much it would allow you to borrow for a mortgage. It helps you in a few ways.

First, it gives you a good idea of what price range you should be looking in. If you know a home's asking price is $200,000 over your pre-approval amount, you know it's not worth your time to put in an offer on that house. But if the asking price is within $5,000 of your pre-approval amount, it might be worth pursuing.

Second, a mortgage pre-approval shows the seller that you're serious and will be able to obtain the funds required to complete the sale if they decide to accept your offer. This might make your offer a little more appealing compared to another potential buyer who doesn't have a pre-approval.

To get pre-approved, you'll need to gather documentation regarding your income, like tax returns and pay stubs. You'll also need to provide your Social Security number so the lender can check your credit score. Check with mortgage lenders to find out exactly what you need to apply.

Pre-approvals are typically valid for 60 to 90 days. After that, you can request a renewal if you don't have a home yet.

2. Be more flexible with your search area

Location has a major effect on the price of a home. Some areas are more desirable than others because of their close proximity to a city center or a lake. These homes are typically more expensive than homes that are farther away.

If you can't find a home you like in your target neighborhood, consider looking a little farther out. It might mean you have to settle for a longer commute to work or to the grocery store, but you may be able to get more home for your money.

3. Consider a fixer-upper

A fixer-upper might be more affordable than a home that's been recently built or renovated. But you're also taking on a project. That means you need extra time on your hands to do the work or extra money to pay someone to do it for you. You'll also need money on hand for the materials.

You must weigh all these costs, plus the home price, against the cost of a home that's move-in ready. If the price difference isn't significant, you may prefer to go with the move-in ready home to save yourself the work. But if you could save tens of thousands of dollars, the fixer-upper might be worth it.

4. Wait it out

It might not be ideal, but if you can't find anything to buy that suits you right now, waiting could be the best strategy. Home prices are beginning to come down, so more affordable options could open up for you in the future.

In the meantime, you can either remain in your existing home or seek out a rental that could accommodate you while you continue your search. Keep checking available homes periodically and act quickly if something within your budget comes up.