Steven and Katherine Wolf missed out on the ultra-low mortgage rates of the pandemic. By the time the couple secured solid jobs and could buy a home, borrowing costs more than doubled.

Rather than wait, the former renters jumped into homeownership in fall 2022. They also stretched, buying a Bakersfield, California, home that carried an uncomfortable monthly payment.

Steven Wolf figured the pain would be fleeting. Within a year rates would drop enough to allow them to refinance and put hundreds of dollars back into their pockets.

That hasn’t happened and isn’t expected to soon. In fact, rates are higher.

“We did this with the expectation that we would only have to weather this high payment for a chunk of time,” the 37-year old English teacher said. “Now that chunk of time is looking like it might actually be permanent.”

Across the country, many buyers employed similar strategies after rates surged in 2022 — at times encouraged by real estate agents and mortgage brokers who earn a commission on each deal. The tactic could still work, but as interest rates stay higher for longer, some Americans express varying degrees of regret as their finances buckle.

A woman in Twinsburg, Ohio, said she’s taken a second job. A man in Oregon said putting money away for retirement is a “distant thought.”

Some said they’re now selling their home or will need to soon. Chelsea Bolinger purchased a house in Highland Ranch, Colo. The 35-year-old tech worker called the experience “horrible.”

“I only bought it because the loan company really pushed that interest rates were going to go down,” Bolinger said.

In Wolf’s case, he said his family’s monthly housing costs jumped nearly $1,500 when they ditched their second-floor apartment and bought a Bakersfield house for $421,000, in part because he and his wife wanted a yard for their two children.

Unable to knock down his monthly payment through refinancing, the family is making little progress paying off other debts and Wolf is working an extra period.

His wife, a speech language pathologist, has picked up weekend shifts she wouldn’t have if rates had dropped.

“That would have been more Saturdays together with the kids,” Wolf said.

In theory, the strategy Wolf and others employed is supposed to work like this.

Buy now — when rates are high and demand low — and you’ll more easily snag a home than if you waited until rates drop and reignite extreme bidding wars.

By acting now, a home’s purchase price will be lower. The monthly payment will be high, but that will go down once rates decline and you refinance.

As some say: Marry the house. Date the rate.

Personal finance, of course, is complicated.

When refinancing, you pay loan fees and other closing costs, which can exceed several thousands of dollars. Consumers must weigh those upfront costs against any savings on the monthly payment.

Holden Lewis, a mortgage expert with NerdWallet, said it typically makes financial sense to refinance once rates drop at least three quarters of a percentage point from where you bought.

According to the Mortgage Bankers Assn., the average rate on a 30-year fixed mortgage should drop to 5.9% by the fourth quarter of 2025, compared with 6.9% currently.

Buying now can be smart, but people should only do so if they are comfortable with the current payment, Lewis said. Expert predictions of falling rates have been proved wrong time and time again. Other home costs — such as HOA fees and insurance — tend to go up.

Even if rates fall, there’s no guarantee you’ll save. Your credit score could drop and lenders will charge you more.

Amy Ramirez is among the many Americans who say they have no regrets.

She and her wife, Noelle, bought a home in Rancho Cucamonga in March. They can comfortably afford it and love the additional space compared with the property they sold in Los Angeles.

Ramirez isn’t expecting rates to drop soon and thinks buying when they did reduced the likelihood of bidding wars on their turnkey, four bedroom house with a swimming pool and mountain view.

“It is just great,” said Ramirez, who, along with Noelle, runs a s’mores shop in West Covina.

High mortgage rates aren’t only affecting consumers, but are also slamming many in the real estate industry as transactions decline.

Some lenders have responded with “Buy Now, Refinance Later” programs that offer reduced refinance fees if you take out a mortgage with the company to buy a home, then use them to refinance within a certain period of time.

Lewis said consumers should check whether the purchase mortgage in such a program carries higher fees or interest rates and also understand that when it comes time to refinance, other lenders may offer lower rates that would save far more than any reduction in fees from the original lender.

As of now, experts said there’s little sign that the inability to refinance will cause a bust similar to the collapse of the 2000s housing bubble.

Then, rising mortgage rates and falling home prices prevented many Americans from executing their plan to refinance out of risky loans before monthly payments adjusted upward from initial teaser rates. Stuck with those high payments, people entered foreclosure en masse, causing home prices to plunge.

Now, home prices are rising and struggling borrowers can probably sell to pay off their mortgage.

Even if prices were to fall, today’s tighter underwriting standards mean people should be better equipped to afford their mortgages than last time, while lenders offer struggling borrowers more options to adjust payments so they don’t lose their home.

“You are going to get very few foreclosures,” said Laurie Goodman, founder of the Housing Finance Policy Center at the Urban Institute think tank. “You are not going to get into that vicious cycle.”

In hindsight, Wolf said, he wished he had sought advice from someone without a financial stake in his home purchase, because he didn’t understand how to properly calculate the risk that his loan officer’s prediction — rates below 6% by summer 2023 — wouldn’t come true.

“I’m not a financial professional,” Wolf said. “I am an English teacher.”

A spokesperson with Wolf’s mortgage company, PrimeLending, said that the company could not comment on individual clients, but that it evaluates a borrower’s ability to repay based on current interest rates and that it “does not make guarantees” on how borrowing costs will change.

“The mortgage market is inherently unpredictable, and while we provide information based on current trends and expert analysis, these are not assurances,” the spokesperson, Mandy Jordan, said in an email.

Going forward, the Wolfs are looking to move to Baltimore after getting better job offers there.

Because their high monthly payment is more than what they could rent their house out for, they’ve listed it for sale and don’t expect to get their down payment back.

The other day, Wolf said he spoke with his loan officer who encouraged him to buy right away in Baltimore so they don’t get priced out and gave a new prediction for when rates would drop.

He also offered to do their loan, according to Wolf.

©2024 Los Angeles Times. Visit at latimes.com. Distributed by Tribune Content Agency, LLC.

House hunting can be exhausting, especially in today’s competitive market. So if you need a vacation, are you throwing away your shot at success?

Karen Wilder, a real estate agent with Mott & Chace Sotheby’s International Realty in Charlestown, Rhode Island, doesn’t think so.

“Sometimes, it can be the best thing for your search for you to just take a little time off,” she says.

If you want to travel and house-hunt at the same time, you have to plan ahead and consider your short- and long-term goals. Here’s how to balance the homebuying process with a much-needed summer getaway.

Weigh your priorities

First, gut-check your travel plans against FOMO: the fear of missing out. In a hot market, home shoppers need to act fast when a great house gets listed. Maybe you have a truly can’t-miss trip — say, your bestie’s destination wedding or a major work conference. But if you have the option to schedule your travel later, it might be worth it to wait.

To help you decide, consider how you’d feel if “the” house came along while you were out of town. Would you regret not being there for an in-person walkthrough? Would you rather be on the beach than on the phone with your buyer’s agent?

“Everybody needs to consider their own comfort level with shopping remotely — their own sort of FOMO when it comes to going away and unplugging,” Wilder says.

The homebuying process is less familiar for first-time home buyers, who might prefer to handle things in person. In her experience, Wilder notes that seasoned real estate buyers or investors are often more comfortable with overseeing a transaction from a distance.

Find a proxy

Krystal Stearns, branch manager at Valor Home Loans in Colorado Springs, Colorado, is one of those seasoned pros. She has purchased six properties across three states without seeing any of them in person first. Digital tools like virtual walk-throughs and listing videos can help, but nothing beats a boots-on-the-ground perspective, she says.

Before you travel, ask an experienced buyer’s agent, trusted friend or family member to attend walk-throughs or open houses on your behalf. When Stearns bought her Florida vacation home sight unseen, she knew she could trust her buyer’s agent to give candid feedback on the place.

“You really need someone who is going to be honest with you, that’s going to look out for you and your family and understand your goals,” she says.

If any must-see listings arise while you’re away, your proxy can walk through the house with you in real time on a video call. They might notice things the listing photos can’t fully capture, from a breathtaking view to a troublesome odor.

“You cannot scratch and sniff online,” Wilder says.

Stay plugged in

Unless you can accommodate a complete pause on your homebuying journey, it’s wise to remain somewhat connected during your travels.

“It might not be the time to climb Mount Everest or, you know, go somewhere completely off the grid,” Wilder says.

Heading on a cruise or long flight? Buy the Wi-Fi. Going camping? Bring a portable power bank to charge your devices (and make sure its battery is full before you leave). Share your travel plans with your buyer’s agent and mortgage team so they know the best way to reach you and how quickly you’re able to respond.

If you’re under contract, your homebuying squad can explain which time-sensitive requests to expect and who will be sending them. For example, if your loan is in underwriting, you might have to submit recent bank statements or pay stubs. Following a home inspection, you’ll want to review the inspection report and negotiate any requests for repairs.

“A closing is, you know, three to four weeks,” Stearns says. “A lot happens in that time period.”

Before you reply to any urgent-sounding emails, check the sender’s address to make sure the request is legit. If something looks off, it could be a mortgage closing scam. Identity criminals can send convincing lookalike emails that attempt to steal your money or personal information.

Watch your spending

A home is one of the biggest purchases you’ll ever make, so now isn’t the time to drain your savings. Before you leave, make a travel budget and stick to it. That’ll save you the stress (or regret) of wondering if you can afford something while you’re in vacation mode.

After mortgage preapproval, lenders keep a close watch on your finances. While you’re traveling, avoid making any unexpected large purchases or opening new lines of credit (like signing up for that airline credit card offer after too many tiny bottles of wine on the plane). Doing so could affect your credit score or debt-to-income ratio, potentially putting your loan approval at risk.

Ultimately, buying a house while enjoying summer travel is possible if you plan ahead and remain reachable by phone or email. It all depends on how you prefer to spend your time.

“Life is short, so live your life as much as you possibly can,” Stearns says. “Don’t let a vacation stop you from buying a house, and don’t let buying a house stop you from going on vacation. Just know it’s going to be a little bit of extra work.”

Abby Badach Doyle writes for NerdWallet. Email: abadachdoyle@nerdwallet.com.

The article Yes, You Can Balance Homebuying and Summer Travel originally appeared on NerdWallet.

After years of mostly steady decline, the Black homeownership rate in the US saw its largest jump on record in the early days of the pandemic. Now, soaring borrowing costs and home prices threaten to erode those gains.

Black Americans — who for decades in the mid-20th century were shut out of swaths of the housing market by redlining and other racist practices — are disproportionately likely to be first-time buyers. And newcomers face a particular disadvantage in this market: They haven’t benefited from rising home equity, so they may need to come up with larger down payments.

And that may prove an especially big hurdle in a demographic group where the median household income is lower than the national average.

Black buyers must navigate a drastically different landscape than in 2020, when mortgage rates had not yet climbed to their recent highs and federal stimulus checks were helping many consumers feel flush. That year, Black homeownership jumped to nearly 46%, the highest since 2010, according to Census Bureau data, and held close to that rate in 2021 and 2022.

But that relatively brief window of opportunity has closed.

“It’s an incredibly difficult market for all home buyers right now, especially first-time home buyers and especially first-time home buyers of color,” said Jessica Lautz, deputy chief economist for the National Association of Realtors.

Affordability crisis

Almost half of Black home buyers in 2022 were first-time buyers, according to a report by the NAR.

Their challenges are in sharp relief in the Atlanta metro area, which is home to the second-largest Black population in the US. The median home price there in November was 54% higher than it was four years ago, a larger jump than the 37% increase seen nationwide.

“In our area where we’re renting, for $265,000 you can get, like, a shack — and I’m not even exaggerating,” Shakeira Wesley said.

Omid Zanjanchian, Wesley’s real estate agent, said he’s seen a decline in clients and transactions since mortgage rates began climbing. Many of his clients, who he said tend to be Black first-time buyers, are being approved for smaller loans and taking longer to find homes.

“You have to get creative and kind of look at certain pockets of the city or go a little bit further out from the city to find that level of affordability,” Zanjanchian said.

The affordability crisis is hardly unique to Atlanta. The median home price in the Chicago metro area, another place with a large Black population, was $298,789 as of November, up 37% from four years earlier, according to the Federal Reserve Bank of Atlanta. And the median home price in the Washington metro area stood at $511,484 in November, an increase from $401,025 four years prior.

The Atlanta Fed tracks housing affordability back to 2006, and the national measure is near its lowest point in the available data.

Mortgage rates have begun to decline over the last couple of months, but remain well above early pandemic levels. The US average rate for a 30-year fixed loan was 6.69% for the week of Jan. 25, according to Freddie Mac.

“The challenge for African Americans is twofold,” said Domonic Purviance, a subject matter expert at the Atlanta Fed. “It’s finding housing that is in an affordable price range, but also once you find a house, being able to qualify based on the minimum payment, because interest rates are much higher.”

House-hunting challenges

Some 32% of those who bought homes in the year ended June 2023 were first-time buyers, according to a National Association of Realtors survey. That’s up from 26% the previous year, but well below the long-term average of 38% seen since 1981 – a sign of how difficult it is to gain a foothold in the market.

Black buyers face additional hurdles, too: They are more likely to hold student-loan debt, said Lautz, the NAR economist, which can eat away at money that might otherwise have gone to a down payment.

“If you’re a first-time home buyer in the market and you don’t have a generational transfer of wealth — which we know that Black home buyers are less likely to have — you’re going to have a harder time entering into homeownership,” Lautz said.

One of the biggest challenges to Black homeownership historically has been higher denial rates for mortgage loans, and that issue persists. In 2022, the mortgage denial rate for Black applicants was 16.8%, well above the 6.7% denial rate for White, non-Hispanic applicants, according to the Consumer Financial Protection Bureau.

The Black buyers who are managing to close on a home are sometimes finding it’s not the one of their dreams.

Khalid Smith and his wife, Holy, closed on a home in October in Atlanta. Though the couple was pre-approved for a $325,000 mortgage, they wanted to find a home under $300,000, but had challenges finding one in that range that they liked.

The couple, also clients of Zanjanchian, put offers on multiple houses.

They ultimately closed on a $314,000 home that Smith described as “dated,” but move-in ready. He said a lending program that offers first-time homebuyers up to $12,500 for down payment and closing costs helped them to afford the purchase.

“We wouldn’t have been able to get this house without it,” Smith said.

‘Not enough supply’

Purviance of the Atlanta Fed notes that the shortage of affordable options for first-time buyers reflects more than the reticence of current homeowners to sell properties where they enjoy mortgage rates of 4% or lower.

“We’re not building enough new houses,” Purviance said. “And the new houses that we are building tend to be in the higher price points. So, it’s just not enough supply to meet the demand.”

In response to that mismatch, Karen Hatcher, chief executive officer of Sovereign Realty & Management in Atlanta, has begun working with minority builders who are willing to build starter homes at affordable prices.

Purviance said that while initiatives like Hatcher’s are helpful around the edges, they aren’t widespread enough or fast enough to meaningfully move the needle on affordability any time soon.

“The level that’s needed, it’s difficult to scale that level of affordability projects,” Purviance said. “It’s a tough issue to solve, because it really isn’t an easy answer.”

©2024 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.

“Numerology” tries to find reality within various measurements of economic and real estate trends.

Buzz: California’s employment picture has cooled to either (1) a new normal or (2) a worrisome slowdown.

Source: My trusty spreadsheet crafted the “HQF” index to loosely measure statewide tensions in the workplace. The math, taken from some novel federal job statistics, compares California hiring (an upbeat signal) with statewide quits and firings (usual signals of distress).

Fuzzy math: What’s up with workplace revolts across California this year – from tussles over work-from-home policies to numerous disagreements putting workers on picket lines?

Topline

California had an HQF rating of 112 in the year’s first seven months – that’s 112 hires for every 100 quits and firings.

What does that mean? Well, it’s sort of a “it-could-be-worse” message. Why? Consider the index’s history.

Since 2001, California has averaged 113 hires for every 100 quits and firings through July. So this year’s is a tad slow.

Now it’s not the worst. That HQF honor goes to mid-Great Recession 2009 which scored a 101. Nor was it the best such as 2021’s rebound from pandemic lockdowns, which scored 124.

• MORTGAGE NEWS: What’s up with rates? Who’s lending? CLICK HERE!

Taking the shorter-term view, 2023’s HQF is an upgrade from last year’s 108. And it tops the 109 average of pre-pandemic 2018-19.

To the HQF, at least, the California job market isn’t so bad.

Details

Let’s see what’s moving the HQF in 2023.

1. Hiring pace cools. Staff additions show confidence in the business climate. And this kind of optimism is down. California bosses hired 4.1 million in 2023, but that’s off 10% in a year. However, it’s 2% above the 2018-19 pace.

• EXODUS SLOWDOWN?: California exits drop 3%, arrivals rose 10%. READ HERE!

2. Quits slow. The “bye, boss” trend is cooling but remains a concern. The 2.4 million Californians who voluntarily left a job this year is off 22% in a year. But quits remain 2% above the 2018-19 norm.

3. Firings are up. Telling workers they’re no longer needed is the most public signal of worry. And the 1.1 million Californians who were involuntarily let go is up 5% in a year. And it’s 15% above pre-pandemic 2018-19.

Bottom line

Rising workplace tensions could be more than just awkward adjustments between boss and employee as the economy adjusts to post-pandemic normalcy.

Fewer job opportunities – less hiring and more firing – can make folks think twice about quitting. But it hasn’t stopped folks from walking off the job en masse.

More traditional job-market yardsticks also show a changing boss-worker dynamic.

Yes, a record number of Californians are employed. But the growth of staffing suggests bosses are a wee bit antsy.

The 2.4% increase in total workers statewide this year is historically strong. But it’s off from 2022’s torrid 6.9% job creation. Curiously, this year’s increase tops the 1.8% job growth of 2018-19 – supposedly the good ol’ days.

Peeking at unemployment, the average 900,000 California officially out of work per month this year is up 7% in a year and 9% above 2018-19. Job security seems to be slipping.

In some ways, though, this year’s workplace chill should be little surprise. It’s exactly what the Federal Reserve is seeking in its quest to fix an overheated US economy.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

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Record-low U.S. housing affordability is squeezing homebuyers and renters while threatening to spill into presidential politics.

Milwaukee, the largest city in key swing state Wisconsin, saw affordability deteriorate in its rental market more than almost any U.S. metro area in the year ended July, according to a measure by the National Association of Realtors. The region also recorded one of the greatest increases in mortgage burden among the biggest 50 metros in the past year, data from Zillow show.

The housing situation in Milwaukee, the site of next year’s Republican National Convention, is a version of a scenario playing out in cities across the country: U.S. mortgage rates in August hit the highest level since 2000, which has translated into the fewest home-buying applications in decades. Adding to the pressure is the scarcity of inventory, which has helped push selling prices, as well as rents, to near record-high levels.

Milwaukee’s crunch stands out, though, because housing in the region has traditionally been relatively stable and cheap, and because it has potential for political fallout: Among large metro areas in swing states, it had the greatest decrease in housing affordability in the past year.

That could shape voters’ views of their own prosperity and the wider U.S. economy, creating a political vulnerability for President Joe Biden — especially with young voters, who are hard-hit by declining housing affordability. Biden can ill afford any setback in a state he won by just 20,682 votes in 2020. Philadelphia, another major population center in a closely fought battleground state, is also among the U.S. metros with the largest increases in mortgage burdens last year, according to Zillow data.

“It contributes to a general sense that the American dream is out of reach, and that if the Democratic Party promises a middle-class American dream and it’s failing, then I think those voters are more likely to listen to the Republican Party,” said Wendy Schiller, a Brown University political science professor.

‘Heartbreaking’

School teachers Maggie Golab, 35, and Jenny Rechlicz, 31, began looking for a starter home in Milwaukee after getting married in July. After looking at 21 houses and getting outbid on three of them, they were finally able to purchase a small bungalow in the Washington Heights neighborhood this month.

While they are pleased with the location, they had to bid above the asking price, and were only able to afford the home because the upstairs and basement are unfinished. They’ll have to spend the next few years remodeling to get the livable space they wanted, Golab said.

“It was definitely very frustrating and kind of heartbreaking,” Golab said of the home-buying process, noting that prices for homes in certain neighborhoods were way higher than she anticipated.

Milwaukee historically has had a relatively stable and affordable housing market, meaning higher costs have a larger proportional affect there than in volatile markets such as in the Sun Belt, said Mark Eppli, director of the Graaskamp Center for Real Estate at the University of Wisconsin-Madison.

Mike Ruzicka, president of the Greater Milwaukee Association of Realtors, said most of the new housing in the Milwaukee market has been luxury apartments, with construction of single-family homes plummeting after the Great Recession.

“It’s very tough to be a buyer,” said Beth Jaworski, who’s been a real estate agent for 31 years in the Milwaukee area and represents Golab and Rechlicz. “I don’t think I’ve ever seen it quite like this.”

Few buyers are insulated from the challenges. In the suburban county of Waukesha, just west of Milwaukee, home prices have risen almost three times more than incomes while available inventory hasn’t met demand, according to a July report by the Wisconsin Policy Forum.

Teig Whaley-Smith, who leads the Community Development Alliance in Milwaukee, estimates there are 17,000 Black and Latino families aspiring to buy a home in the county for $125,000 or less — but only 1,500 such properties are available. He blames out-of-state investors buying single-family homes to rent.

Strong Turnout

Millennial and Generation Z voters under the age of 45, who comprise an increasingly large share of the U.S. electorate, are disproportionately affected by housing affordability. Exit polls show they voted overwhelmingly for Biden over former President Donald Trump in 2020.

A Pew Research Center survey conducted March 27 to April 2 found that 66% of U.S. adults ages 18-29 were not too confident or not at all confident that Biden can make good decisions about economic policy, and 62% of adults ages 30-49 feel the same way. Polling of Generation Z by SocialSphere Inc. found that the inability to buy a home was their second-largest source of unhappiness.

Biden will need strong turnout from these younger cohorts to repeat his victory in Wisconsin.

The president has touted his efforts to lower housing costs, boost available supply and protect renters, while Republicans have blocked his efforts and haven’t offered their own plans. He’s proposed a “Housing Supply Action Plan” with legislative and administrative actions to help close the U.S. housing supply shortfall in five years.

“President Biden is investing in affordable housing after decades of inaction,” spokesperson Michael Kikukawa said in a statement. “He believes young people deserve to live in a quality home that they can afford to rent or own—that they deserve a fair shot at the American dream.”

And it may help that some voters care more about issues such as climate change and abortion and don’t tie conditions in their local housing market to the policies of national lawmakers.

Ka Seng Lim, a 25-year-old engineer and Democrat from Milwaukee, said he doesn’t blame Biden for the low inventory and the fierce competition for affordable houses that he and his fiancée encountered before finally buying a starter home last month.

Still, Republicans see it as a weakness for the president, pointing the finger at him for “killing the American dream of homeownership.” While inflation has moderated since last year, GOP candidates have sought to tie Democrats to the soaring prices consumers have recently seen in many corners of the U.S. economy.

Republican strategist Doug Heye said that high prices, especially for housing, are the main reason Democrats can’t be confident Biden would beat Trump next year, if he’s the GOP nominee.

Chris Sinicki, chair of the Democratic Party of Milwaukee County, said she’s concerned about how Republican messaging on housing affordability might weigh on turnout. In particular, she worries it might discourage Black and young people from voting in the numbers Democrats need to win her state.

“It’s something that as Democrats, we need to figure out how we’re going to counter,” Sinicki said in an interview. “We need to get out every single voter in Milwaukee County.”

____

—With assistance from Michelle Jamrisko.

©2023 Bloomberg News. Visit at bloomberg.com. Distributed by Tribune Content Agency, LLC.

Does your dream home have a $700,000 price tag? That’s well above the National Association of Realtors’ median price for a home, which in July 2023 was $406,700. Whether you can afford such a pricey purchase will depend on a variety of factors, including your salary and the interest rate of your mortgage.

Use Bankrate’s mortgage calculator to figure out how much you need to make to afford a $700,000 home:

• Assuming a 30-year fixed mortgage and a 20 percent down payment of $140,000, at an interest rate of 6.5 percent, your monthly principal and interest payment would be $3,539. That’s more than $42,000 per year on principal and interest alone.
• Round that monthly figure up to around $4,200 to account for property taxes, homeowners insurance and potential HOA fees, all of which vary widely. That makes your total annual housing bill $50,400.
• Now apply the common rule of thumb that you shouldn’t spend more than about a third of your income on housing. The $50,400 figure, multiplied by three, comes to $151,200 — that is the minimum salary you’d need in order to afford this home purchase.

To reiterate, these numbers will vary drastically depending on variable factors like your homeowners insurance premium and local property taxes. Your monthly payment will be lower if you snag a lower mortgage rate, higher if it’s higher; and your payment will be higher if you make a down payment of less than 20 percent as well. Here’s a deeper dive into how much income you’d need to afford a $700,000 home.

Income to afford a $700K house

The 28/36 rule is a good starting point when determining what salary you need for a $700,000 home purchase. This real estate rule of thumb recommends that no more than 28 percent of your total monthly income should go toward your monthly housing costs, and that no more than 36 percent go toward overall debt payments (including housing).

Here’s how the rule works for the annual income of $151,200, as determined above. Dividing by 12 for a monthly amount comes to $12,600, and 28 percent of $12,600 is $3,528 — almost exactly equal to the monthly principal and interest figure roughly determined above. But don’t forget that you’ll need to factor in the variable monthly fees that get rolled into your housing payment, such as property taxes and insurance premiums.

As you run the numbers, keep the 36 part of the equation in mind as well. Other monthly debt, like car payments, credit card balances or student loans, can add up, and you don’t want to stretch your budget too thin by exceeding that 36 percent guideline. There are also the ongoing costs of homeownership to stay on top of, such as maintenance and upkeep.

In addition, remember that a $700,000 budget can take you quite far in most areas of the country. According to Redfin data from July 2023, the median sale prices in many major cities are much less — including Washington D.C. ($617,000), Denver ($587,000), Miami ($580,000), Phoenix ($436,824) and Atlanta ($385,000). Just because you can afford to spend $700K doesn’t mean you need t0 (or should).

What factors determine how much you can afford?

As you evaluate how much home you can afford, there are many factors to consider besides the property’s sticker price. Some of the most important include:

• Down payment: The larger your down payment on a house, the less you need to borrow — and so, the smaller your monthly mortgage payments will be. This is especially true with higher-priced homes: A 20 percent down payment on a $700,000 home means $140,000 that you won’t have to pay back, with interest.
• Loan-to-value ratio: Your down payment will also determine your loan-to-value ratio, or LTV. This figure represents how much of the home’s total value you are borrowing.
• Mortgage rate: Higher rates mean more interest to pay. Even one percentage point makes a big difference: The $3,539 monthly payment outlined above for a 6.5 percent interest rate becomes $3,915 at 7.5 percent. That’s $4,512 per year — or more than $135,000 over the life of a 30-year loan.
• Credit score: A higher credit score will boost your chances of snagging a lower mortgage rate.
• Debt-to-income ratio: DTI is calculated by considering your gross monthly income against your debt obligations each month. The higher your DTI, the more of a risk lenders will likely consider you.
• Financing: Before committing to a mortgage loan, do your research and shop around for the various types of financing that you may be eligible for. Many state and local governments also offer down payment assistance and other programs designed to make homeownership more achievable, especially for first-time buyers. Your high salary means you may not qualify, but it’s well worth looking into just in case.

Stay the course until you close

Once you go into contract on a home purchase, it can take weeks or even months before you actually sit down at the closing table. In the interim, don’t stop monitoring the factors listed above. For example, don’t apply for new credit cards or make purchases that require financing, like a car, because those things impact your credit score. And if possible, don’t make any big life changes that could affect your financial status either, such as starting a new job.

For most buyers, working with a knowledgeable local real estate agent is invaluable. Interview a few people to find a good fit for you. An agent will be able to guide you through the entire homebuying process with professional expertise.

FAQs

Can I afford a $700K home with a $200K salary?

Most likely yes. Assuming a 20 percent down payment on a 30-year fixed-rate mortgage with a 6.5 percent interest rate, you’ll pay about $4,200 per month in housing costs on a $700,000 home purchase. According to the 28/36 rule, you should spend a maximum of 28 percent of your income on housing. For a $200,000 salary, 28 percent equates to $4,666 per month, which is more than enough to cover the monthly $4,200 cost. Just be careful to factor in your other debts and expenditures, to ensure you don’t stretch yourself too thin.

What factors affect how much house I can afford?

How expensive of a house you can afford will depend largely on your income, your credit score and the prevailing mortgage interest rates. Location matters a lot too, as the same housing budget can go much further in some places than others. You should also evaluate the cost of living in your desired area, as well as the ongoing maintenance costs associated with homeownership.

Visit Bankrate online at bankrate.com.

©2023 Bankrate.com. Distributed by Tribune Content Agency, LLC.

The continued strength of the U.S. economy could require further interest rate increases, Federal Reserve Chair Jerome Powell said Friday in a closely watched speech that also highlighted the uncertain nature of the economic outlook.

Powell noted that the economy has been growing faster than expected and that consumers have kept spending briskly — trends that could keep inflation pressures high. He reiterated the Fed’s determination to keep its benchmark rate elevated until inflation is reduced to its 2% target.

See more: Home sales slumped in July as rising rates and prices discouraged buyers

“We are attentive to signs that the economy may not be cooling as expected,” Powell said. “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

“Although inflation has moved down from its peak — a welcome development — it remains too high.”

Powell’s speech, at an annual conference of central bankers in Jackson Hole, Wyoming, highlighted the uncertainties surrounding the economy and the complexity of the Fed’s response to it. It marked a contrast to his remarks here a year ago, when he bluntly warned that the Fed would continue its campaign of sharp rate hikes to rein in spiking prices.

See more: California inflation cools, but is it enough?

“When it comes to another rate hike, the chair still very much has his finger on the trigger, even if it’s a bit less itchy than it was last year,” said Omair Sharif, chief economist at Inflation Insights.

Substantially higher loan rates, a direct result of the Fed’s rate hikes, have made it harder for Americans to afford a home or a car or for businesses to finance expansions. At the same time, items like rent, restaurant meals and other services are still getting costlier. “Core” inflation, which excludes volatile food and energy prices, has remained elevated despite the Fed’s streak of 11 rate hikes beginning in March 2022.

The overall economy has nevertheless powered ahead. Hiring has remained healthy, confounding economists who had forecast that the spike in rates would cause widespread layoffs and a recession. Consumer spending keeps growing at a healthy rate. And the U.S. unemployment rate stands exactly where it did when Powell spoke last year: 3.5%, barely above a half-century low.

“He is still very concerned how rapid the economy is growing because that does actually mean, all else equal, we need higher interest rates just to be restrictive,” said Diane Swonk, chief economist at KPMG.

In his speech, Powell did not mention the possibility that the Fed will eventually cut interest rates. Earlier this year, many on Wall Street had expected rate cuts by early next year. Now, most traders envision no interest rate cuts before mid-2024 at the earliest.

Powell said the central bank’s policymakers believe their key rate is high enough to restrain the economy and cool growth, hiring and inflation. But he acknowledged that it’s hard to know how high borrowing costs must be to slow the economy, “and thus there is always uncertainty” about how effectively the Fed’s policies are in reducing inflation.

The Fed’s officials “will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” he said.

Since Powell spoke at last summer’s Jackson Hole conference, the Fed has raised its benchmark rate to a 22-year high of 5.4%. From a peak of 9.1% in June 2022, inflation has slowed to 3.2%, though still above the Fed’s 2% target.

Powell acknowledged the decline in inflation, which he called “very good news.” Consumer prices, excluding the volatile food and energy categories, have begun to ease.

“But two months of good data,” he added, “are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.”

In June, when the Fed’s 18 policymakers last issued their quarterly projections, they predicted that they would raise rates once more this year. That expectation might have changed, though, in light of milder inflation readings the government has issued in recent weeks. The officials will update their interest rate projections when they next meet Sept. 19-20.

Some Fed officials, including John Williams, president of the Federal Reserve Bank of New York, a top official on the interest-rate setting committee, have suggested that the central bank may be nearing the end of its rate hikes.

Many economists have postponed or reversed their earlier forecasts for a U.S. recession. Optimism that the Fed will pull off a difficult “soft landing” — in which it would manage to reduce inflation to its target level without causing a steep recession — has risen.

Many traders in the financial markets envision not only a soft landing but an acceleration of growth. Those expectations have helped fuel a surge in bond yields, notably for the 10-year Treasury note, which heavily influences long-term mortgage rates. Accordingly, the average fixed rate on a 30-year mortgage has reached 7.23%, the highest level in 22 years. Auto loans and credit card rates have also shot higher and could weaken borrowing and consumer spending, the lifeblood of the economy.

Emily Roland, co-chief investment strategist at John Hancock Investment Management, is among the analysts who still doubt that the Fed will achieve a soft landing.

“The lag impact of all the tightening that the Fed has done — the most amount that we’ve seen in decades — is likely to bite and tip the economy into a recession,” she said. “It’s just taking a while to get there.’

Likewise, Sonia Meskin, head of U.S. macro at BNY Mellon Investment Management, said she worries that the financial markets are “underestimating the chances of a harder, delayed landing.’

“Much of the tightening might still be in the pipeline,’ Meskin said, and the full impact of higher rates might not hit until next year.

Some economists say they think that much higher long-term rates in the bond market might lessen the need for further Fed hikes because by slowing growth, those long-term rates should help cool inflation pressures. Indeed, many economists say they think the Fed’s July rate increase will prove to be its last.

Even if the Fed imposes no further hikes, it may still feel compelled to keep its benchmark rate elevated well into future to try to contain inflation. This would introduce a new threat: Keeping interest rates at high levels indefinitely would risk weakening the economy so much as to trigger a downturn. It could also endanger many banks by reducing the value of bonds they own — a dynamic that helped cause the collapse of Silicon Valley Bank and two other large lenders last spring.

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AP Economics Writer Paul Wiseman contributed to this report from Washington.

After a record-breaking run that saw mortgage rates plunge to all-time lows and home prices soar to new highs, the U.S. housing market finally started slowing in late 2022. Mortgage companies engaged in mass layoffs, real estate economists lamented a “housing recession” and home prices seemed poised for a correction.

But a strange thing happened on the way to the housing crash: Home values started rising again. In fact, housing prices have increased for four months in a row, according to the latest Case-Shiller home price index. In another reflection of ongoing price increases, the National Association of Realtors (NAR) says more than half of U.S. metro areas registered home price gains in the second quarter of 2023.

While NAR reports that median sale prices of existing homes have declined year-over-year for five consecutive months through June, that comes with an asterisk. Home prices in June 2023 were down slightly compared to June 2022 — but this June’s median price of $410,200 was still the second-highest monthly number ever recorded by NAR, outpaced only by last June’s $413,800.

Home values have held steady even as mortgage rates have topped 7 percent. The culprit is a lack of housing supply. Bidding wars have returned, and inventories remain frustratingly tight. “You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory.”

Skylar Olsen, chief economist at Zillow, agrees about the supply-and-demand imbalance. Her latest forecast says home prices will keep rising into 2024 — welcome news for sellers but not so great for first-time buyers struggling to become homeowners. “We’re not in that space where things are suddenly going to be more affordable,” Olsen says.

Still, a rapid rise in mortgage rates and a sharp slowdown in home sales has some bracing for the worst. After the June 14 Federal Reserve meeting, Fed Chairman Jerome Powell told reporters he was keeping a close eye on the housing market. “Housing is very interest-sensitive, and it’s one of the first places that’s either helped by low rates or held back by higher rates,” Powell said in the press conference. “We’re watching that situation carefully.”

Regardless, housing economists and analysts agree that any market correction is likely to be a modest one. No one expects price drops on the scale of the declines experienced during the Great Recession.

Will the market crash?

The last time the U.S. housing market looked so frothy was back in 2005 to 2007. Back then, home values crashed with disastrous consequences. When the real estate bubble burst, the global economy plunged into the deepest downturn since the Great Depression. Now that the housing boom is threatened by soaring mortgage rates and a potential recession — Bankrate’s most recent expert survey put the odds at 59 percent — buyers and homeowners are asking a familiar question: Is the housing market about to crash?

Housing economists agree that prices could fall further, but the decline won’t be as severe as the one homeowners experienced during the Great Recession. One obvious difference between now and then is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of home equity and a fixed-rate mortgage locked in at a rate well below 5 percent — in fact, according to a June Redfin study, 82.4 percent of all current homeowners are locked in below the 5 percent mark.

What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale. “We simply don’t have enough inventory,” Yun says. “Will some markets see a price decline? Yes,” he says. “[But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”

Existing home prices

Economists have long predicted that the housing market would eventually cool as home values become a victim of their own success. After decreasing year-over-year in February for the first time in more than a decade, the median sale price of a single-family home showed a 0.9 percent yearly decline in June, per NAR.

Overall, though, home prices have risen far more quickly than incomes. That affordability squeeze is exacerbated by the fact that mortgage rates have more than doubled since August 2021.

Prices to hold strong

While the housing market is indeed cooling, this slowdown doesn’t look like most real estate downturns. Home sales have plunged, and inventories of homes for sale have fallen sharply, too. Homeowners who locked in 3 percent mortgage rates a couple years ago are declining to sell — and who can blame them, with current rates above 7 percent? — so the supply of homes for sale is even tighter. As a result, this correction will be nothing like the utter collapse of property prices during the Great Recession, when some housing markets experienced a 50 percent cratering of values.

Yun says high-priced regions such as California are most vulnerable to a downturn in prices. In fact, that is already playing out in notoriously pricey markets like San Francisco, where the median sale price in June was down 8.8 percent year-over-year, Oakland, which saw an 11.3 percent drop, and Los Angeles, where the decline was 7.1 percent, according to Redfin data.

However, he says, “Even in markets with lower prices, multiple-offer situations returned in the spring buying season following the calmer winter market.” Overall, Yun expects national prices to remain flat.

5 reasons not to expect a crash

Housing economists point to five compelling reasons that no crash is imminent.

—Inventories are still very low: The National Association of Realtors says there was a 3.1-month supply of homes for sale in June. Back in early 2022, that figure was a tiny 1.7-month supply. This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.

—Builders didn’t build quickly enough to meet demand: Homebuilders pulled way back after the last crash, and they never fully ramped up to pre-2007 levels. Now, there’s no way for them to buy land and win regulatory approvals quickly enough to quench demand. While they are building as much as they can, a repeat of the overbuilding of 15 years ago looks unlikely. “The fundamental reason for the run-up in price is heightened demand and a lack of supply,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “As builders bring more available homes to market, more homeowners decide to sell and prospective buyers get priced out of the market, supply and demand can come back into balance. It won’t happen overnight.”

—Demographic trends are creating new buyers: There’s strong demand for homes on many fronts. Many Americans who already owned homes decided during the pandemic that they needed bigger places, especially with the rise of working from home. Millennials are a huge group and in their prime buying years. And Hispanics are a growing demographic also keen on homeownership.

—Lending standards remain strict: In 2007, “liar loans,” in which borrowers didn’t need to document their income, were common. Lenders offered mortgages to just about anyone, regardless of credit history or down payment size. Today, lenders impose tough standards on borrowers — and those who are getting a mortgage overwhelmingly have excellent credit. The median credit score for mortgage borrowers in the the second quarter of 2023 was a high 769, the Federal Reserve Bank of New York says. “If lending standards loosen and we go back to the wild, wild west days of 2004-2006, then that is a whole different animal,” says McBride. “If we start to see prices being bid up by the artificial buying power of loose lending standards, that’s when we worry about a crash.”

—Foreclosure activity is muted: In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes. Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. And while there has been a slight uptick in foreclosures since then, it’s nothing like it was.

All of that adds up to a consensus: Yes, home prices are still pushing the bounds of affordability. But no, this boom shouldn’t end in bust.

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(Visit Bankrate online at bankrate.com.)

©2023 Bankrate.com. Distributed by Tribune Content Agency, LLC.

Buying a home in an era where borrowing costs are high, inventory is low and housing prices are expensive isn’t a goal for the faint of heart.

But the perennial underdogs of home buying — the younger Americans who’ve consistently struggled — are indicating they’re up for the challenge, even if it requires giving something up.

The majority of Generation Z and millennials who do not own a home say they’re willing to make a sacrifice to find more affordable housing (at 82% for those between the ages of 18 and 42), according to Bankrate’s housing affordability survey published in April. That compares with 61% of non-homeowner Generation Xers and baby boomers (those between the ages of 43 and 77). They’re also more inclined to take action than Americans overall, including homeowners and non-homeowners alike (64%).

To become homeowners, those younger generations say they’d be willing to do anything from buy a fixer-upper (29%) or move out of state (29%), to take on roommates and live with additional family members (27%), downsize their living space (27%) or move farther away from family and friends (26%).

Their motives are clear. Gen Z and millennials who don’t own a home still appear to have aspirations of purchasing one: about two-thirds (or 66%) of them consider owning one a feature of the “American Dream.” Meanwhile, just 6% of Gen Z and 8% of millennials say they never want to own a home, compared to 19% of Gen X and 17% of baby boomers. It’s long been known, however, that the U.S. economy has had other plans for them.

Experts say the stakes may be even bigger. Young Americans’ housing decisions could reshape the economies of where they decide to live and work, as well as the housing market overall. Millennials have been the largest generation in the U.S. since 2020, and Gen Z’s dominance is already coming into play.

If Americans find themselves continually priced out of buying a home, housing affordability factors could keep underpinning higher rent prices — a factor that may also keep the Fed on edge to raise interest rates even more this year. The longer those potential homebuyers stay on the sidelines, the more difficult their path to wealth-building becomes.

“Housing used to be thought of as the path to creating the middle class,” says Nela Richardson, chief economist at ADP. “If housing is becoming exclusive, what supports the middle class in terms of wealth creation? That’s still an open question.”

The housing conundrum: Higher rates aren’t weighing on home prices — yet

Any increase in mortgage rates can sting would-be homebuyers, but the pain is especially acute after living through the low-rate era that preceded the recent inflation surge.

As the Fed rushed to raise interest rates at the fastest speed since the 1980s, mortgage rates more than doubled in just 10 months, hitting a two-decade high of 7.12% by October 2022. The speed was unprecedented.

It came at a time when millennials — and even adult Gen Zers — were just starting to join the housing race. Millennials made up the biggest share of buyers between 2014 and 2022, according to data from the National Association of Realtors. Their gains, however, quickly lost pace: Baby boomers are now the largest generation of homebuyers, at 39% and up from 29% last year, the latest NAR data now shows.

Part of the story, Gen X and baby boomers aren’t on the same starting line as millennials and Gen Zers. They’re more likely to already be homeowners, meaning the massive run-up in home prices comes to their advantage. Just about a quarter (or 26%) of all buyers purchased for the first time in 2022, the lowest in NAR’s records and down from 34% in the prior year. The typical first-time homebuyer also hit 36 years old — the oldest on record.

Yet, higher mortgage rates were supposed to be the pain before the gain. Housing demand is typically either helped by low rates — or depressed by more expensive ones. Early in the Fed’s rate-hiking campaign, Fed Chair Jerome Powell expressed hopes of an eventual housing “reset” at a post-meeting press conference in June 2022 in response to questions from Bankrate.

To be sure, sales have softened across the country. They’re down about 20% in May from the prior year, the latest NAR data shows. But home prices have only cooled a modest 2.4% from their peak in June 2022, according to national data from the Case-Shiller Home Price Index.

But real estate is local, as First American Financial Corporation’s Odeta Kushi puts it. Some markets haven’t even seen a decline in home prices at all, including Miami, Orlando, Tampa and Charlotte, according to the title insurance company’s Real Home Price Index and its analysis of “boom, no-bust” cities.

Surge in mortgage rates exacerbates housing shortage

Keeping prices high are ongoing inventory challenges, and higher rates have only exacerbated them. After the subprime mortgage meltdown of 2007-2009, new-home construction slowed rapidly and never fully recovered. By the time the coronavirus pandemic-induced recession hit in February 2020, housing starts were still down 31% from the 2007 peak, Census Bureau data shows. Starts for single-family units remained even more depressed.

Balanced housing markets tend to have at least six months’ worth of housing supply, but as of May, it would’ve taken just 3 months to sell all of the homes on the market, NAR data shows. Buyers are picking up the pace — that ratio is up from a low of 2.6 months in February — but the process of constructing to selling a home takes time.

“You used to be able to find a home around $250,000, and there’s just limited inventory in that price point now,” says Erica Davis, a broker at Guild Mortgage, of her home base in Myrtle Beach, South Carolina. “You’ve got values going up; interest rates are going up. It’s a lot more on their monthly payment. I have a lot of pre-approved clients, and there’s nothing that they can qualify for.”

Younger generations who don’t currently own a home reported in Bankrate’s poll that not having enough income is a major barrier to homeownership (45% for Gen Z and 44% for millennials), as well as home prices being too high (34% for Gen Z and 42% for millennials) and being unable to afford a down payment and closing costs (30% for Gen Z and 43% for millennials).

Structural changes are keeping sellers on the sidelines, too. Homeowners who locked in sub-3% mortgage rates during the lows of 2021 are in no rush to sell their homes if it means committing to a near-7% mortgage for a new home. Older Americans are also living longer, and technological and health advancements are allowing them to stay put in their homes.

“New supply — that’s the best way to solve the housing affordability issue over the long run,” Kushi says. “That lack of inventory puts a floor on how low prices can go.”

A millennial herself, Kushi knows these stats are more than just numbers. Just last year, she was a first-time homebuyer. She recalls being in a bidding war with one home that had 19 offers. She almost didn’t even end up closing on the home she bought.

She’d paid a visit to the potential property 10 hours after it was first posted and scheduled an inspection for the following day. Two hours after her showing, however, the home had already received an above-market offer.

“They were kind enough to take a look at an offer from me,” she says. Kushi ended up winning by $1,000. “I always tell people, do not get caught up in the hysteria. Make a budget, and stick with it.”

Should younger Americans make a sacrifice to buy a home, or should they wait it out? Here’s 8 steps you can take in a tough housing market

The young Americans who want to own a home are facing a major — and expensive — dilemma. Should they keep renting, should they wait out the market or should they make a sacrifice just to buy? No choice is free or painless.

Delaying homeownership can come with major setbacks. Homeowners’ median net worth ($254,900) is more than 40 times the net worth of renters ($6,270), according to the Federal Reserve’s most recent Survey of Consumer Finances from 2019.

But so can buying a house that you’ll later regret. Younger Americans who own a home are also more likely to wind up facing a financial-related regret about their purchase, at 45% for Gen Zers and 36% for millennials, versus 26% of Gen X and 22% of baby boomers. Those include anything from locking in a too-high monthly mortgage payment or rate, as well as facing unexpectedly expensive maintenance fees or other hidden costs.

Other common non-financial-related regrets include buying too small of a house or not liking the location, Bankrate’s poll found.

The longer Americans wait to mull it over, the more it’s costing them, too. National rent prices are slowing down from the previous two years of gains, but many cities are still just stabilizing after pandemic-era price bursts, according to data from Zumper. Historically pricey cities like New York and Jersey City are still facing record highs, and no end is in sight, the housing listing site said.

The choice is always a challenge when buying a home is a commitment. For a year and a half, Matthew Hackett’s family had to make do in a smaller, older home as they searched for a bigger house in their price range. The New York-based operations manager at mortgage lender EquityNow said he slept in the living room with his wife while his two children each took their home’s only bedrooms until 2014, when they found their current home.

They didn’t want to move to New Jersey or Long Island, even if it meant finding more homes in their price range. Instead, they endured the trials and tribulations of the hunt to wait for a place in their target location and price range.

They ended up finding a place. It had four-inch carpets, four layers of curtains, pink and floral wallpaper and more signs of its age — but “those are the sacrifices you make,” Hackett says.

“There are always going to be sacrifices, unless you have some unlimited supply of wealth,” he adds. “You have to figure out what you’re willing to sacrifice.”

For the young Americans who want to buy a home but aren’t sure if they should make more sacrifices or stick it out, here’s 8 tips for you to decide what to do.

1. Think about what’s most important to you over the long haul

Don’t set unrealistic expectations for yourself: Buying a perfect home that checks all of your boxes is next-to-impossible, and having a too-narrow search could also cause you to pass up on perfectly suitable housing options. The ultimate goal, however, is making sure you’re not sacrificing the features that are most important to you.

You may be open to living anywhere, or perhaps you’d prefer to be close to family, friends or a city. To know what you have to work with, though, you have to first know what works for you.

And don’t just think about the now. Financial situations change, and families grow. With Americans staying put in their homes for longer, you’ll likely want to consider what will be important to you over a longer time horizon.

2. Know your budget and stick with it

You’ll never know what works for you if you don’t have an idea of how much house you can afford in the first place. Financial experts often recommend never spending more than 25-28% of your monthly take-home pay on housing as a typical rule of thumb.

Look at your household’s spending habits, savings, debts and income. Other costs to include are closing and moving costs, property taxes, insurance and utility costs, as well as maintenance fees and emergency repairs.

Beware, however, of constructing a budget that’s so strict you can’t take vacations, live comfortably, continue saving and treat yourself every now and then. Jake Northrup, CFP and founder of Experience Your Wealth, recommends looking at housing at the low, medium and high end of your budget, then figuring out what you may need to sacrifice to achieve any of those price points.

“You may decide that buying a home on the lower end of your budget and having the ability to travel twice per year instead of once per year is more important to you than having a home on the high end of your budget,” Northrup says. “Without understanding these tradeoffs, you are making one of the biggest financial decisions of your life in the dark.”

3. Consider why you want to become a homeowner

For most Americans, their home is the biggest purchase they’ll ever make. The bonus is that their valued asset will hopefully keep appreciating. But it’s important to be honest with yourself about the cyclical nature of housing.

“The decision to buy a home — if you’re not an investor — is a lifestyle decision,” Kushi says. “Housing is, first and foremost, shelter.”

Housing prices will rise and fall depending on the local and national economy. Cities may be more affordable in the Midwest, for example, but they might not appreciate as much as coastal cities or growing markets such as Austin and Phoenix.

Those gyrations don’t matter so much if you’re willing to wait out the bumps and stay put for longer. But if the main reason why you want to buy a home is so you’re banking the money rather than your landlord, the lifestyle isn’t as glamorous as it often sounds. Remember: Anytime a dishwasher breaks or the bathroom plumbing needs fixing, you’re on the hook to pay for it.

Northrup recommends asking yourself some main lifestyle questions, including:

• What is it about owning a home that you cannot achieve through renting?
• How is owning a home directly in line with your core values?
• What’s the opportunity cost of putting your money towards a home?

“If you feel buying a home is still the right thing to do after answering these questions, then you are likely ready to consider buying a home,” he says. “However, if you feel that buying a home jeopardizes some of your other goals such as traveling, paying down student loans or investing in yourself, you may want to reconsider whether buying a home is the right thing for you.”

4. Factor in the costs and requirements of relocating for housing

If you’re moving far away, your home won’t be the only major purchase you have to make. Relocation fees can also be expensive, and it’s also important to research tax and insurance-related costs of your new area, too.

Above all, you want to be sure your new home is the right place for you. It might not be worth the money, time and energy to move all of your assets long-distance if you plan to go back to your original location in only a few years — especially if housing affordability challenges eventually subside.

“Just because it’s cheaper doesn’t mean that that’s the place where you ought to be,” says Kaysi Gordon, CFP and founder of New York-based Kaysi Gordon Financial Planning. “If the only thing you’re looking at is, ‘The pricing of housing is cheaper there. I’m going to go there and be miserable,’ I’d say that’s a bad bet.”

5. Think twice about moving away for a job — or relocating because you can work remotely

Despite structural shifts in the way Americans view work, they’re still indicating a willingness to move to a new area for a job. Even more surprising, young Americans are especially inclined.

More than 1 in 4 American workers (or 26%) said in a March Bankrate poll that they’re likely to relocate for a job at some point over the next 12 months. Those figures jumped for younger Americans, hitting 37% for Gen Z workers and 34% of millennial workers, compared with 17 and 8% of their Gen X and baby boomer counterparts, respectively.

Remote work, meanwhile, may inspire workers to move to any area that’s cheaper since they have the flexibility.

Workers, however, should carefully research the area where they’re considering moving. The job market is solid today, but it might not be forever. Unemployment is projected to hit 4.5% by July 2024, according to Bankrate’s second-quarter Economic Indicator survey. Know what opportunities your new location may give you if you were to lose your position — and have a game plan in mind.

Some industries could face worsening employment outlooks than others, but a slowdown in remote-work jobs has long been predicted. The share of positions advertising remote or hybrid work has fallen over the past year, from a peak of 10.3% in February 2022 to 8.4% in May 2023, Indeed data shows. Job postings have also fallen the most in the sectors that are considered remote-work friendly, including IT, software and other information technology services. At the same time, Indeed finds that job-seeker interest in remote work is still near an all-time high.

A softening labor market shifts the power away from employees and back to employers, giving companies the wherewithal to take away those benefits.

6. If you’re interested in moving to a lower-cost city, consider these Bankrate-backed metro areas

If your career is easily transferable and you’re flexible about where you live, Americans can utilize Bankrate’s rankings of the country’s cheapest cities, its best places for first-time homebuyers, hidden housing gems and best cities to launch a career for help in their housing research.

7. Get a handle on your finances while you wait

Americans shouldn’t attempt to time any market, let alone housing or real estate. The best time to buy a house doesn’t come down to mortgage rates or home prices — but rather, your individual financial situation.

Your credit score, a strong history of on-time payments and low debt-to-income ratios can help keep you first in line for lenders’ most competitive offers. If you’re caught in housing limbo, consider using the time to your advantage, padding up all of the components of your future mortgage application.

You can also use the time to prioritize saving up for a down payment, as well as closing, maintenance and emergency costs. If you’re successful, you may even be able to increase your housing budget.

And remember: A minimum 20% down payment is a widespread misconception. You might still have to pay for private mortgage insurance (PMI) if you put down less, but it also might make more sense for your individual financial picture.

Most conventional mortgages allow you to put down at least 3%. Some lenders may even have special deals for first-time homebuyers, such as down-payment match programs, lower rates and more.

“Good savings habits, an aversion to overspending and debt and investing in your earning power are the building blocks of successful homeownership,” says Greg McBride, CFA, Bankrate chief financial analyst. “A few years of modest, even tepid, home price appreciation will allow the incomes of young, upwardly mobile aspiring homeowners to catch up to home prices.”

8. Know you don’t have to buy a home to grow your wealth

Above all, it’s important to remember that you don’t have to wait to become a homeowner to grow your wealth. The strong financial habits of saving for the unexpected and investing for longer-term goals often are what pay off the most.

If you already have an emergency fund and are contributing to your retirement accounts, Americans can also invest for their future outside of an employer-sponsored plan by opening their own brokerage accounts. You could even pay for a downpayment with some of the money from your investments, depending on your time horizon.

If you were to start investing just $200 a month starting at 22, you could have $1.2 million by the time you reach 70, assuming an 8% annual return, calculations from Bankrate show.

“It’s not a bad thing to not want to be a homeowner,” Gordon says. “It just might not be your value system. It’s more important to live in your value system than to say, ‘This is the American Dream.”

Methodology

Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,545 US adults (18+), among whom 1,338 were homeowners and 1,207 were not homeowners. Fieldwork was undertaken March 22 – March 24, 2023. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.Bankrate.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,417 adults, among whom 1,524 were either employed or looking for work. Fieldwork was undertaken on March 8-10, 2023. The survey was carried out online and meets rigorous quality standards. It employed a nonprobability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.

Visit Bankrate online at bankrate.com.

©2023 Bankrate.com. Distributed by Tribune Content Agency, LLC.

With rents soaring since the COVID-19 pandemic tightened the housing supply, more local governments are considering rent control to keep increases in check and, ideally, protect struggling tenants whose incomes haven’t kept pace.

At the same time, some states are enacting measures to prohibit cities from adopting rent control, a policy that has long divided economists and housing experts.

Some policy analysts say restrictions exacerbate the housing crunch by keeping tenants in place longer than they’d otherwise stay. And some research has raised questions about whether the true beneficiaries are renters with low incomes or those with high incomes.

Rent regulation policies — known as rent control or rent stabilization — dictate how often and by how much a landlord can increase rents. More than 200 local governments have a rent control policy in place, according to the National Apartment Association, an industry group.

More local governments are working to join the list.

Late last month, Maryland’s Montgomery County — one of three Maryland counties to adopt rent control ordinances this year and the state’s largest at more than a million residents — capped annual rent increases at 6%.

In Massachusetts, Boston Mayor Michelle Wu and the City Council are struggling to push legislation that would exempt the city from the state’s 30-year-old rent control ban.

And in Seattle, the City Council in July debated a rent control proposal; but at an Aug. 1 meeting — amid chants of “housing is a human right” — the proposal failed on a 6-2 vote.

The bill would have created a trigger law that would go into effect in the event that Washington state’s 42-year ban on local rent control is overturned. Council member Kshama Sawant, the bill’s main sponsor, said during the vote that the bill was necessary to prompt the state legislature to repeal the law.

Housing shortages

In 2020, Montgomery County responded to the pandemic by passing an emergency rent control act that capped annual rent increases at 4%. When regular rent increases resumed in August 2022, rents in the county — where 40% of residents are renters — skyrocketed and more people were evicted, said Natali Fani-Gonzalez, a Democratic member of the Montgomery County council who introduced the rent control measure.

“This huge push for rent stabilization across city government is one of the consequences of the pandemic,” Fani-Gonzalez said.

The measure approved in July, which passed on a 7-4 vote, takes effect in October.

Fani-Gonzalez told Stateline that the new ordinance was “controversial” and contentious among the 11-person board but that she believes it will help ensure short- and long-term housing affordability.

“The heart of the whole piece of legislation is the cap for renting prices. … But managing to do so — that was a happy medium for renters and investment in our real estate,” she said.

“I saw this as an anti-rent-gouging effort, and during the pandemic, we had a measure in place that acted as rent control,” she added. “But it was temporary and when it ended, rent rose, and it put a burden on our residents.”

But Council member Gabe Albornoz, a Democrat who voted no, said he worried that it would disrupt the housing marketplace. Democratic Council member Marilyn Balcombe feared the bill would end up reducing the housing supply, pushing up prices.

State laws

In 2019, Oregon became the first to pass a statewide rent control law, capping increases at 7% a year plus inflation. Later that year, California followed by capping rent increases at 10% per year.

Both states have seen actions to expand rent control.

In Oregon, renters were stunned when last year’s high inflation led to legal rent increases of more than 14%. In response, lawmakers this year amended the law to cap rent increases at either 10% or 7% plus inflation, whichever is lower.

In California, voters could change the scope of rent control if they pass the Justice for Renters Act proposal in 2024. The ballot initiative would repeal the Costa-Hawkins Rental Act, a 1995 law that exempts single-family homes and condominiums, plus post-1995 construction, from rent control.

Dan Yukelson, executive director of the Apartment Association of Greater Los Angeles, said California’s rent regulation policies are “oppressive” on the rental industry, with many mom-and-pop landlords hamstrung by rising costs of managing properties.

Yukelson said one of the harms in a possible repeal of the Costa-Hawkins Act is the elimination of vacancy decontrol, which sets the rent amount at market or near market levels when the unit is vacant. He says the act helps smaller landlords compete in a tight California housing market.

“Smaller owners who just can’t deal with these layers of regulation are getting out of the (rental) business,” Yukelson told Stateline. “There’s a complete misunderstanding on the side of elected officials on what it takes to operate rental housing. So, either the government needs to run all the rental housing, or there needs to be some easing up on these regulations.”

At least 30 states preempt local governments from adopting rent control laws. Five states without statewide rent regulations — Maine, Maryland, Minnesota, New Jersey and New York, along with Washington, D.C. — allow rent control at the local level.

The National Multifamily Housing Council tracked 23 states that had measures related to rent control enactment in the works heading into 2023, but none has led to a statewide measure or repeal.

However, a few states were successful in strengthening preemption laws this year.

In March, Florida Republican Gov. Ron DeSantis signed off on a bill preventing local rent control.

Montana enacted a rent control ban on private and commercial property. State Sen. Steve Fitzpatrick, a high-ranking Republican in the Legislature, told Stateline that rent control measures could discourage landlords from investing in the state’s real estate market.

“This was a way for us to fill some of the gaps in our previous laws, where a particular cap measure could be implemented on certain property,” Fitzpatrick said.

So far this year, efforts to repeal these preemptions have fallen short.

Legislation that would have repealed Colorado’s 4-decade-old ban on local rent control died in a committee. Similar bills in Georgia, New Mexico and North Carolina also failed to advance.

Little consensus on rent regulation

Economists and housing experts disagree on whether rent control is effective. One challenge is that rent regulation differs so greatly from city to city, according to Jen Butler, a spokesperson for the National Low Income Housing Coalition, an advocacy group.

“This diversity in rent stabilization policies has resulted in mixed evidence as to the impact of them on the rental housing supply and rents,” Butler said in an interview. “These policies protect renters currently in homes covered by the policy from unaffordable rent increases — but they can also encourage these same renters to remain in place longer than they typically would, while renters in homes not covered by the policy are left without similar protections.”

Proponents of rent control, among them Rutgers University economist Mark Paul, say arguments against rent control lack empirical evidence.

“I think it’s important to note that rent control does not say landlords can’t profit off their property. That’s not the point of rent control,” said Paul. “Rent control is limiting the ability of landlords, or corporately owned property owners from raising the rent by 6, 8 or 12% a year and pricing people out of their homes.”

A 2021 University of Minnesota study published by the university’s Center for Urban and Regional Affairs suggests that rent control policies increased housing stability, and there is little evidence that those policies negatively impacted new construction — which is dependent on localized economic cycles and credit markets.

That same study, which reviewed rent control policies of four cities (Oakland, California; Newark, New Jersey; Sacramento, California; and Portland, Oregon) pointed out that there is debate on whether most rent regulation benefits are going to the neediest renters.

When Minneapolis floated the possibility of rent stabilization earlier this year, a study requested by the city council advised against it, suggesting it would not offer much help to city residents.

Rising rents

The No. 1 driver of long-term U.S. homelessness, housing policy experts and advocates said recently during a joint press call with media members, is rising rents.

“For 75 years, the long-term trend has been that the cost of modest rental housing has been going up faster than modest income,” said Steve Berg, chief policy officer for the National Alliance to End Homelessness.

Between 2019 and 2021, median rents went up by 12% for renters in households making less than $15,000, according to the Center on Budget and Policy Priorities, a left-leaning think tank.

Those increases, said Peggy Bailey, vice president of housing and income security for the center, “were not met with corresponding increases in income” and disproportionately affected Black and Latino renters.

According to 2017-2021 census data, more than 19 million renters in the United States are considered rent-burdened, spending more than 30% of their income on rent. In New York City, renters on average spend more than 68% of their income on rent, according to a January Moody’s Analytics report.

There also is a dearth of affordable rental housing. Low-cost rentals fell by 3.9 million units over the past decade, according to the Harvard Joint Center for Housing Studies’ State of the Nation’s Housing report.

In Indiana, which prohibits local rent control, Indiana University McKinney School of Law professor Fran Quigley has had his law students working closely with tenants in Indiana’s eviction court. Rent control, Quigley believes, could change housing outcomes in the Hoosier State, where evictions surpassed historical average levels in March 2022.

“I think rent control momentum is going to continue to build, because we have 44 million rental households in this nation and that’s a really powerful political block,” said Quigley. “Folks get mobilized, speak out, and rent control on the ballot does very well. … That works in the favor of momentum going forward.”

Stateline is part of States Newsroom, a national nonprofit news organization focused on state policy.

©2023 States Newsroom. Visit at stateline.org. Distributed by Tribune Content Agency, LLC.