Earlier this month, the National Association of Realtors (NAR) issued its 2021 fourth-quarter report on existing-home prices, noting that the median sales level had reached $361,700, with double-digit increases recorded year over year in two-thirds of the country's 183 metro areas.
Affordability also worsened, the trade group said, with sustained price appreciation and higher interest rates pushing up the typical payment for a single-family home mortgage with 20% down to $1,240, representing 16.9% of the family income, up from 14.7% in 4Q 2020. First-time homebuyers, meanwhile, were generally spending 25.6% of household income on mortgage payments, above the trade group's 25% "affordability line." (The NAR includes a down payment of 10% for first-time homebuyers in its calculations.)
"A number of families, especially would-be first-time buyers, are increasingly being forced out of the market, and this is why supply is critical to expanding homeownership opportunity," NAR chief economist Lawrence Yun said in the report.
Cheaper by the dozen, at least in these smaller metros
Meanwhile, real estate investors looking for markets that might be promising for finding flips and long-term rentals might consider this observation near the end of the report: "In 12 metro areas where the median home sales price was less than $160,000, a family generally needed less than $30,000 to purchase a home."
- Decatur, Illinois
- Peoria, Illinois
- Davenport-Moline-Rock Island (Illinois-Iowa)
- Waterloo-Cedar Falls, Iowa
- Springfield, Illinois
- Rockford, Illinois
- Youngstown-Warren-Boardman, Ohio
- Toledo, Ohio
- Erie, Pennsylvania
- Binghamton, New York
- Elmira, New York
- Cumberland, (Maryland and West Virginia)
That $30,000 in annual income is quite a contrast to the $100,000 or more needed to sustain a mortgage at the other end of the spectrum, in the 20 markets with median home sales prices of $537,400 to $1.675 million in 4Q 2021. They were concentrated in California, Hawaii, Colorado, Washington, Oregon, Florida, the New England and Northeastern states, and the Washington, D.C., metro area.
There were only 17 metro areas at the $100,000 line in the previous quarter, rising by three in just three months as home prices continued to accelerate. Meanwhile, there were 81 markets with a median sales price of $267,700 or less, places where a household income of less than $50,000 can sustain a first-time homebuyers' mortgage.
Could these markets be affordability hot spots?
These are generalities, of course. Everyone's situation is different when it comes down to the size of the down payment, whether it's a first-time purchase or one of many. And every market is different.
However, as the NAR's Yun said in the quarterly report, "The strength of price gains are associated with the strength of the local job market, but the escalating prices took a toll on home shoppers, compelling many to come up with extra cash, and forcing others to delay making a purchase altogether."
Rather than delaying their purchases, what if a lot of these people with options when it comes to changing jobs or taking their jobs with them begin to target these cheaper markets?
That seems likely as affordability issues just keep growing. And that makes now a good time to consider targeting these less-pricey places yourself before they begin to see demand and prices rise there, too.