Oct 20, 2023
The dream of homeownership is slipping further away for many American families thanks to a perfect storm of sky-high mortgage rates and rising home prices.
Homebuyers today need an annual income of $114,627 to afford a median-priced U.S. home, according to Redfin analysis, which is up $15,285, or 15% from a year ago and is almost $40,000 more than what the typical household earns.
Advertisement
Much of the pain is felt in the monthly mortgage payments. The typical U.S. homebuyer’s monthly mortgage payment has hit an all-time high of $2,866, according to Redfin, up 20% from a year earlier.
The average 30-year fixed mortgage rate recently passed 7.5%, hitting its highest level since 2000 and really putting strain borrowers’ budgets and purchasing power.
“In a homebuyer’s ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now,” said Redfin Economics research lead Chen Zhao.
If you’re determined to buy a home, there are ways to control your costs. If you would rather wait out the pricey market, here are some alternative ways to invest in real estate.
Buyers should ‘think outside the box’
Homebuyers — particularly first-timers who are committed to getting a foothold on the housing ladder — “should think outside the box,” according to Zhao.
“Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates — and that’s propping up prices.”
He said first-time buyers to consider options that are less expensive than a single-family home, like “a condo or a townhouse.” You may also have to look at “moving to a more affordable part of the country, or a more affordable suburb.”
Advertisement
The income needed to buy a home has risen in all major U.S. metropolitan areas, according to the Redfin report, with the biggest uptick in Miami, FL, and the smallest in Austin, TX. Redfin noted the necessary income has increased least in pandemic homebuying hotspots, like Boise, ID, Salt Lake City, UT, Fort Worth, TX and Lakeland, FL.
Once you find a home you want to buy, you need to become a savvy shopper. When facing mortgage rates of close to 8%, it can really pay to shop around. Earlier this year, mortgage giant Freddie Mac said homebuyers can potentially save $600-$1,200 annually by applying for mortgages from multiple lenders — worthwhile savings in today’s tricky economic climate.
The same can be said for essential expenses like insurance once you’ve bought your home. Don’t just settle for the first home insurance quote you get. Shop around and compare multiple options the best coverage and the best price for you.
If you’ve considered all of that and you’d still rather ride out this wave, there are other worthwhile ways to invest in real estate.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — are you doing the same?
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Robert Kiyosaki says this 1 asset will surge 400% in a year and begs investors not to miss this ‘explosion’
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Real estate investing alternatives
Real estate investment trusts
Investing in a real estate investment trust (REIT) is a way to profit from the real estate market without having to buy a house or take on the stress of being a landlord.
REITs are publicly traded companies that own income-producing real estate like apartment buildings, shopping centers and office towers. They collect rent from tenants and pass that rent to shareholders in the form of regular dividend payments.
Advertisement
Generally, REITs are described as high-return investments that provide solid dividends and the potential for moderate, long-term capital appreciation.
Also, as REITs are publicly traded, you can buy or sell shares any time and your investment can be as little or as large as you want — unlike buying a house, which usually requires a hefty down payment followed by a mortgage.
Crowdfunding platforms
Crowdfunding refers to the practice of funding a project by raising small amounts of money from a large number of people. This can include real estate.
Through a crowdfunding platform, you can buy a percentage of physical real estate — from rental properties to commercial properties.
Some options are targeted at accredited investors and can have higher minimum investments that can reach tens of thousands of dollars.
If you’re not an accredited investor, there are multiple platforms let you invest small sums, even as low as $100. You can even buy a stake in digital real estate.
Sponsors of crowdfunded real estate deals usually charge fees to investors — typically in the range of 0.5% to 2.5% of whatever you’ve invested. These platforms make real estate investing more accessible to the general public by simplifying the process and lowering the barrier to entry.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- Inside a $1B real estate fund offering access to thousands of income-producing rental properties — with flexible minimums starting at $10
- Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.
