It’s starting to show up in pockets across the country – growing pockets. Most people can’t afford to buy a home. We are becoming a nation of renters.
In parts of California, fewer than 30% of the population makes enough money to afford the average home. The effects on the real estate market are predictable and real.
What has caused this situation? Two things. First, the slow but steady increase in values after the real estate collapse. After plummeting between 2006 and 2012, values have been rising. We had a brief period of huge increases but that has settled back to a more sane 3% – 5% a year.
The other factor – the one nobody wants to talk about – is a corresponding FALL in wages. All across the country, median household income is down from where it was five years ago. Here, in San Diego, the decline is 6.3% – $61,426 vs $65,575 in 2009 – while in Phoenix the decline is closer to 10%.
The only metro with positive growth is Pittsburgh. Those lucky Pennsylvanians experienced a 2.1% increase in median household income over the past five years.
It is an election year and it would be easy to become very political in a conversation about why wages in the U.S. are falling, but that is not our purpose here.
Looking forward you have to wonder if we’re not headed toward another drop in prices. If people can’t afford to buy houses and houses need to be sold, something must give.
But this is also the type of climate that sometimes produces innovation. Perhaps a new wrinkle in real estate financing will enable people making less to afford more. That’s what happened back in the early ’80s. Houses became un-affordable because of a huge run up in interest rates. Lenders responded with Adjustable Rate Mortgages, marketed as temporary financing.
In addition, there would appear to be a big market for affordable housing, and the construction industry will certainly respond.
But for the average American needing to sell a house . . . the future looks murky at best.
Of course, the way to make your home MORE affordable is to reduce the price. And one way to mitigate the impact of a price reduction on your net proceeds is to drop your high priced, percentage based real estate broker in favor of one charging a much lower Set Fee. Clearly, a price reduction is going to hurt a whole lot less if, instead of paying your broker $18,000 to sell your $300,000 house, you’re paying a low set fee of, say, $4,950. Where do you find such a broker? At Help-U-Sell. Use the link to the right to find an office near you.