In the years following the 2008 collapse of the housing market, a more pragmatic home buyer and lender have emerged. Today’s buyers are choosing more affordable housing over pricey behemoths. In fact, a 2014 New York Times article suggests that America's fastest-growing cities are now those where housing is more affordable than the national average. Here are a few key reasons why affordable homes are outpacing mega mansions this year.
More Pragmatic Home Buyers
After a tough economic downturn and millions of job losses and home foreclosures, homebuyers are focusing more than ever on saving money and living within their means. Oftentimes that translates into purchasing smaller, more affordable homes with lower operating costs.
Realtors® should always keep in mind that house hunters don't want to be “house poor.” Homes that are more affordable can help put owners in a better position to save and to be prepared should they face a financial crisis.
Stricter Mortgage Lending Practices
Mortgage lending guidelines have become much more stringent than in years past, and include tighter restrictions regarding fees and points, debt-to-income ratios and income verification, as well as the elimination of mortgages greater than 30 years, interest only loans and negative amortization loans. All of this may mean that buyers ultimately qualify for lower loan amounts and therefore purchase homes that are priced accordingly.
Millennials Driving the Market
During the Great Recession, many unemployed, college-debt-strapped millennials—those age 25 to 34—opted to live at home with parents after college. However, after landing decent-paying jobs in an improving economy, a wave of millennials are now entering the housing market in search of affordable homes and are contributing to the increased demand.
After a cycle of inflated pricing and valuations, loose lending and frenzied buying, followed by a tumultuous drop, the housing market is now in a slow rebound. However, new regulations, prudent lending, continued job growth and more financially disciplined buyers may contribute to a sustained recovery that's bolstered by the demand and supply of affordable homes.
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