With housing costs growing, homebuyers are redefining the traditional path to homeownership. About 43% of prospective buyers considered alternative housing options, such as fixer-uppers and tiny homes, a Remax study reported.
Rather than focusing on new construction or traditional starter homes, 56% of potential buyers surveyed by Remax would consider a fixer-upper. Many buyers are also turning to options like prefabricated homes or tiny homes – 39% of homebuyers thought about buying pre-built homes or tiny homes.
Some buyers also had to switch up financing to cover the cost of buying, with 28% of prospective buyers considering living in multi-unit buildings and having other tenants cover part of the mortgage. Equally popular is co-buying with people other than romantic partners as 28% of buyers also considered buying with friends or family members, the Remax study stated.
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NEW CONSTRUCTION HOMES POPULAR AMONG MILLENNIALS DESPITE HIGH HOUSING COSTS
Prospective homebuyers may be searching for alternative housing options due to a lack of affordable listings. In 2023, someone making nearly $79,000 would spend over 41% of their monthly earnings on housing costs if they bought an average-priced house, according to data from Redfin.
"A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history," Redfin Senior Economist Elijah de la Campa said.
To spend 30% of their income on housing, the average homebuyer would need to make $109,868 annually. That’s $31,226 more than the typical household makes in a year, Redfin reported.
Wages aren’t keeping up with the rising cost of housing. The average monthly mortgage payment rose by 12.6% in 2023 to $2,715. Wages only grew by 5.2%. While that’s a record high, according to Redfin, it’s not enough to balance out high housing costs.
"The good news is that affordability is already improving heading into the new year," de la Campa said. "Mortgage rates are coming down, more people are listing homes for sale, and there are still plenty of sidelined buyers ready to take a bite of the fresh inventory. We expect these conditions to continue to improve in 2024."
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HOMEOWNERS MOVING ACROSS STATE LINES, SEEKING AFFORDABILITY, FIND IT IN CERTAIN CITIES
Anyone buying in 2024 is likely to see lower interest rates than those who bought over the last year. Mortgage interest rates are predicted to drop below 6% by the end of the year, according to Fannie Mae.
"Given the expectation of rate cuts this year from the Federal Reserve, as well as receding inflationary pressures, we expect mortgage rates will continue to drift downward as the year unfolds," Freddie Mac Chief Economist Sam Khater said. "While lower mortgage rates are welcome news, potential homebuyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise."
As these rates fall, the number of listings is likely to increase as homeowners become more enticed to move. Sellers that have been waiting out high interest rates will likely get a slight break, easing the lock-in effect that’s dominated the market in recent years.
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HOME BUYERS STRUGGLE IN 2023, BUT HOMEOWNERSHIP RATE COULD RISE IN 2024
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