Rising mortgage rates are making homes much less affordable in the nation’s largest housing markets, prompting first-time buyers to get creative. Buyers in these high-priced markets are expanding their horizons.
A study by ConsumerAffairs found that 81% of prospective homebuyers were considering buying a “second home” first, while continuing to rent their primary residence. A few said they would use their purchase as a vacation getaway but most said they would try to generate revenue from it.
The study found that the youngest cohort of potential buyers, Gen Z, is the most likely to consider this move. Eighty-seven percent of all first-time buyers said they believed buying an investment property would enable them to purchase their primary residence within three years.
The favorite region of the U.S. for second home shopping is the South Central region, selected by 48% of those in the study. The South Atlantic region was closed behind at 43%. Those areas tend to have the lowest median home prices.
Real estate professionals say they have seen evidence of this trend. Rose Ciardiello, an agent with William Raveis Real Estate, a Connecticut-based firm, says the trend actually began early in the COVID-19 pandemic and continues.
“Some of these buyers are renting out their ‘second’ homes while they are occupying rentals in the cities, and others keeping it unoccupied so they can escape whenever they wish,” Ciardiello recently told us. “Some will experiment with both – renting out their home while they’re not there, but keep it on reserve for specific weeks of the year so they can enjoy themselves.”
The ConsumerAffairs study found declining home affordability in the most expensive markets may be contributing to the trend. Nearly all first-time buyers – 92% – said they could not afford a mortgage in this current interest rate environment – even though most earned good salaries – prompting them to consider buying elsewhere.
On second thought, maybe we'll just move
Not only buying but moving. Among Gen Z respondents, 79% said they are considering relocating to a more affordable state or city so they can afford to purchase a home as a primary residence.
Other generations are also considering packing up. More than 60% of millennials and Gen X are considering moves and even baby boomers, nearing or in retirement, are looking for greener pastures.
“To me, one of the most surprising elements of the study on second homes was that 43% of baby boomers we surveyed said they planned to move to a cheaper state to afford a home,” said Cassidy McCants, deputy editor at ConsumerAffairs.
“Sixty-four percent of all respondents, including Gen Z, millennials and Gen X, said the same but the fact that such a significant percentage of the older population is still struggling to afford a home indicates how much is left to be desired across the board in the current housing market. Boomers we interviewed also said they needed to save $20,557, on average in order to buy their first home — and that they were willing to go $1,976 over their monthly budget to afford a mortgage.”
According to the National Association of Realtors (NAR), the average mortgage payment in Los Angeles County is now $3,510, up from $2,590 12 months ago. In contrast, the average monthly mortgage payment in Hamilton County, Ohio (Cincinnati) is $1,034, up from $705 a year ago.
There appear to be plenty of affordable markets to choose from. The NAR data show that 40.7% of U.S. counties have median home prices of $150,000 or less.