Things are rough for many right now across the developed world and it can seem like there isn’t much hope for improvement. Everyone has been hit by a strong wave of inflation which has made daily life more costly and the housing market is reaching a breaking point. The jump in home prices during Covid, followed by the drastic increase in mortgage rates has made home affordability out of reach for most.
Recently, an article about how $140K could be the new poverty line captured the mood, but also put a crushing exclamation point on it. It starts to feel like anyone who hasn’t found a home yet is screwed and that the American Dream is simply running away. The goal of this article is to put forward a few thoughts that help show how the math could start to turn back in our favor for the biggest pain point, the housing market.
Home and Rent Prices are down dramatically across a number of cities
The city that exemplifies this the most is Austin, TX. Its a city I lived in for 6 years and watched explode during the 2010s. I never would have figured that this housing market would cool off, but I also didn’t expect the ridiculous quantity of homes and apartments that would go up. Each trip my family takes back to the city there are new complexes built it doesn’t seem to be slowing too much even with the price drops.
What this drop has shown is that there are limits to the housing madness, but also it gives a roadmap for other cities. Even the construction of luxury apartments has shown to be part of what is bringing the prices down overall. Wealthier people are moving up to the new units, but it creates openings lower down. This creates opportunities for folks down the ladder to find a place.
The cause for hope is that many have thought the need was to build housing for middle class renters, but the reality is even housing that is focused up the income ladder still opens up spots. This cascade can really help people who are in the outlying areas where rents may drop off the most due to cooling demand. Austin has given proof of concept which then puts pressure on other cities to get building if they really care about their citizens.
Image of Moontower Saloon in the affordable 78748 zip code in South Austin
Restaurants and coffee shops continue to spread into the outer neighborhoods of Austin which makes these areas more fun to call home. This trend, coupled with the dramatic drop in prices for both rent and homes in the greater Austin area creates better chances for younger people to get traction.
Smaller, Affordable Cities are Quietly Getting Cooler
The funky bars and cool coffee shops are spreading around Austin, but they are also finding their way into the smaller metro areas around the country. One of the major factors in my families decision to relocate back to my hometown of Spokane, Washington was that it had more and more pockets that reminded us of Austin.
Image of Indaba Coffee Shop in Spokane in the affordable 99205 zip code
Spokane is among the many mid-size cities across the country that don’t inspire much nostalgia from people who aren’t connected to them. These are the sleepy places where people grow up and move to a big city like Seattle or Portland. However, as the years go by, more and more places are popping up that are bringing big city culture into the smaller metros. A reason for this is that the people opening these hip businesses also need to afford a place to live.
I’m sure if I ventured into any of the mid-size metros across the US, I could track down enough trendy spots to keep most people happy. These cities aren’t turning into Seattle or San Francisco, but they have enough. The key is to find a place with enough to make you happy, but not enough to turn into the next Bend or Bozeman. Being a little trashy is perfect to keep the super rich away.
I’m sure there are a ton of people who would puff out their chests to say that a place like Spokane could never compete with Seattle or Austin, but that is a big part of why there is hope here. Places like Spokane will never get the hype of the big cities which will always keep them more reasonable and therefore keep them a place where you can hope to afford a home.
Slow Housing Market Opens the Door for Fixer Upper Deals
I can still remember the chaos of the housing market in the great blitz from 2010 – 2020 where offers were flying and bidding wars were the norm. In that rush, it didn’t matter if a place had bad carpet or needed all the flooring replaced. Prices were just going up and if you wanted to be slow you would just be sitting on the sidelines.
Now the vibe is completely different in most places. Homes aren’t selling as quickly and if they have some issues they can fall further than they should. Its not like things are going to drop into the bargain basement, but things can definitely fall further than they should. Most first time home buyers simply don’t want to deal with the work to bring new life to a home in less than optimal shape.
Additionally, since the numbers for investors are so much less appealing in the higher interest rate environment, there isn’t the competition when homes drop like there was in the past decade.
This is where the terrible vibes for the housing market really give a great opportunity. Most will simply not go looking and so they won’t see where the numbers may actually look really good for an older house that a family is looking to unload. Even in the heated market during Covid, homes that need work still slipped through because people can’t always see the potential. Now that the mood has soured, there is more potential for homes to drop to a spot where it could be right to buy.
Real estate prices are very chaotic and hard to pin down due to the variablity of homes. This can make it very challenging, but it also creates opportunity.