Brokers licensed in multiple states and willing to adjust client expectations have a genuine edge, analyst says
Housing affordability has been a major talking point on Capitol Hill. The 21st Century ROAD to Housing Act, which passed both chambers of Congress with overwhelming support, is expected to become law after being delivered to the White House.
While the new law won’t solve all of the country’s affordability issues, proponents are hopeful that it will make some improvement. A new study shows why affordability improvement is needed.
A new LendingTree report said just 38% of non-homeowner households in the United States can afford the average $200,000 starter home, and the median non-homeowner household earns $7,099 less than the $62,099 annual income needed to purchase one.
Matt Schulz (pictured top), chief consumer finance analyst at LendingTree, said in the highest-cost markets, first-time buyers have very little room to work with when trying to become a homeowner. The practical solution may involve looking at other markets, if their situation allows, which could be an advantage for brokers licensed in multiple states.
"People for whom owning a home is a major priority may have options in other parts of the country if they are willing to relocate," Schulz told Mortgage Professional America. "And today with so much remote work and that sort of thing, it feels like it's a little more of an option than it was certainly a decade ago. There's such a gigantic difference among the states that depending on your individual circumstances, you may be able to find a place that would work for you."
Both coasts among least affordable
Rhode Island is the least affordable state for non-homeowners, according to the report, with just 17% able to afford the average $350,000 starter home. The median household there earns $56,581 less than the income needed to buy one.
California presents the largest affordability gap by dollar amount. The median non-homeowner household earns $67,776 less than the $140,676 income needed to afford the average $482,000 starter home, and just 21% can do it.
Schulz said East Coast cities like Boston and Providence have little room to grow against persistent demand, making the math nearly impossible for starter homebuyers.
"There's just not a whole lot of room to grow, and there's so much demand," he said. "And those locations are expensive. For somebody who's looking for a starter home, it makes it really, really hard."
On the affordable end, Mississippi leads the country with 62% of non-homeowners able to afford the average $85,000 starter home. In some Deep South states, the median non-homeowner income is enough to afford a starter home, despite some of those areas being lower-income markets.
Recalibrating buyer expectations
The most important thing brokers can do right now is help clients recalibrate their expectations, Schulz said. A common mistake homebuyers make is treating their first home as their forever home. Television programs where first-time buyers look for extravagant homes don’t match reality.
"You constantly see people going in where it's their first home, and they're talking about how it may be their forever home," he said. "And the expectations seem just maybe a little unrealistic. Somebody needs to sit them down and say, ‘Maybe we're not talking about someplace you're going to live for 40 years. Maybe we're just talking about a place where you can get started and build some equity and then move to a bigger, better-fitting place later on.’
“I think that there's something to be said for having that kind of discussion. Nobody wants to be a dream crusher. But sometimes a little bit of perspective and a little bit of context can be really, really helpful."
On the macro picture, Schulz said consumer confidence is holding buyers back as much as interest rates. Weaker job reports released this week show a softening market, and Schulz said that everyone knows someone who has struggled to find a new job after being on the market for a long time.
"I think maybe the best thing that could happen in terms of the housing market is for the job market to improve dramatically," he said. "People who feel confident and people who feel secure in their financial situations are much more likely to take the leap into the housing market. And there's just so much uncertainty now that we're just not there yet."
His advice to consumers, and to the brokers working with them, reflects that uncertainty.
"Assume that it's going to be a challenging market, both price-wise and interest rate-wise, for at least the near future," Schulz said.
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