{"id":186290,"date":"2025-12-26T13:20:32","date_gmt":"2025-12-26T20:20:32","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=186290"},"modified":"2025-12-26T13:20:35","modified_gmt":"2025-12-26T20:20:35","slug":"75-percent-of-homes-are-too-expensive-for-buyers","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/75-percent-of-homes-are-too-expensive-for-buyers","title":{"rendered":"An Alarming 75% of Homes Are Too Expensive For Buyers"},"content":{"rendered":"\n

Starter homes have become nonstarter homes for many Americans. Three-quarters of the homes currently listed for sale are out of reach for median-income earners, according to a recent analysis from<\/span> Bankrate<\/span><\/a>. <\/span><\/p>\n\n\n\n

The lack of buyers, however, is reshaping the investment landscape for small investors, who are buying up single-family homes in<\/span> record numbers<\/span><\/a>.<\/span><\/p>\n\n\n\n

Affordability Is Slipping Away<\/span><\/h2>\n\n\n\n

Using the metric that standard housing costs should not exceed 30% of gross income (before taxes), according to Bankrate, the typical U.S. household earns around $80,000 per year, but would need to make around $113,000 to afford a median-priced house. <\/span>This<\/span>, according to brokerage Redfin, is <\/span>about $440,000<\/span><\/a>, a figure that varies markedly by city. With mortgage rates just above<\/span> 6%<\/span><\/a>, affordability is pushing buyers out of the market.<\/span><\/p>\n\n\n\n

\u201cThe people who you know are finding homeownership to be easier either have higher income, or they have family members who can help,\u201d Chen Zhao, head of economics research at Redfin, told Bankrate. \u201cThere are also those who bought a home before 2022. If you were part of that group, you got pretty lucky.\u201d<\/span><\/p>\n\n\n\n

According to the<\/span> National Association of Realtors<\/span><\/a>, only 24% of housing sales in 2024 were by first-time homebuyers. In 2010, the number was 50%.<\/span><\/p>\n\n\n\n

“Only a sliver of the housing market is affordable to the typical household,” Bankrate data analyst Alex Gailey told<\/span> CBS News<\/span><\/a>. “That’s when homeownership starts to feel less like a common middle-class milestone and more like a luxury.\u201d<\/span><\/p>\n\n\n\n

Behind the affordability issue lies a severe lack of supply, which, according to investment bank<\/span> Goldman Sachs,<\/span><\/a> is short by around 3 million to 4 million homes beyond <\/span>normal<\/span> construction.<\/span><\/p>\n\n\n\n

A Renter Nation Mindset<\/span><\/h2>\n\n\n\n

The affordability issue has been prevalent for the past three years, since interest rates first started to climb. Now, the renter nation mindset appears baked into many who have given up on owning a home. <\/span><\/p>\n\n\n\n

According to a study by <\/span>Northwestern and the University of Chicago,<\/span><\/a> Americans who were born in the 1990s \u201cwill <\/span>reach retirement<\/span> with a homeownership rate roughly 9.6 percentage points lower than that of their parents\u2019 generation.\u201d<\/span><\/p>\n\n\n\n

A<\/span> Pew Research Center<\/span><\/a> analysis examined where younger Americans, aged 25 to 34, still lived with their parents in 2023. Unsurprisingly, expensive cities in Texas, Florida, and California showed the highest percentage of young adults living at home, with young men more likely to do so than young women.<\/span><\/p>\n\n\n\n

Luxury Condos Aren\u2019t Helping<\/span><\/h2>\n\n\n\n

Although adding new housing has alleviated the supply issue in some areas, particularly the Sunbelt, many of these new condos are<\/span> too expensive for first-time homebuyers<\/span><\/a>, who can do without a slew of amenities and luxury finishes that push the units out of the \u201cstarter home\u201d price range.<\/span><\/p>\n\n\n\n

The Renter Sweet Spot<\/span><\/h2>\n\n\n\n

For landlords to appeal to the vast swathe of renters unable to get on to the property ladder, they must speak directly to their wallets. <\/span><\/p>\n\n\n\n

In 2024,<\/span> USAFacts<\/span><\/a> estimated that the U.S. renter household paid a median of about $1,490 per month in rent, which equaled 32.8% of median renter income, though these figures varied by location. <\/span>Mortgage<\/span> trade publication <\/span>Scotsman Guide<\/span><\/a>, citing the Census Bureau, said that over half of all renter households (50.3%) are burdened by housing costs and spend <\/span>over<\/span> 30% of gross income on housing.<\/span><\/p>\n\n\n\n

To work out how much a prospective tenant can reasonably afford, the simple rule of thumb for landlords is to multiply their gross monthly income by 0.3%. <\/span>So if<\/span> they earn $5,000 (before deductions), they should be able to afford around $1,500 in rent.<\/span> For many landlords who ignore what prospective tenants can afford, the rude awakening of a vacant apartment, followed by a drop in rent, is a reality in many cities.<\/span><\/p>\n\n\n\n

\u201cRent continues to fall in many of the major metros across the United States for a variety of reasons,\u201d Joel Berner, a senior economist at<\/span> Realtor.com<\/span><\/a>, said. \u201cThe biggest one is that rent is still correcting itself from the dramatic run-up of 2021 and 2022, when several years’ worth of rent gains <\/span>were seen<\/span> over the span of a few months.\u201d<\/span><\/p>\n\n\n\n

Renting Is Still Cheaper Than Buying<\/span><\/h2>\n\n\n\n

Even if prospective tenants could afford the <\/span>down payment<\/span><\/a> to buy a home, renting is still cheaper than buying. Realtor.com quotes a median mortgage payment of $2,040 versus $1,693 for rent. Only a sizable drop in interest rates and greater supply will bring about some parity.<\/span><\/p>\n\n\n\n

For minimum-wage earners, the situation is even more dire, with just <\/span>five of the top 50 metros being affordable<\/span><\/a> for those earning minimum wage. Escalating rents have not, for the most part, been due to small mom-and-pop landlords, who own the majority of rental housing in the U.S., but rather to <\/span>corporate landlords<\/span><\/a>.<\/span><\/p>\n\n\n\n

Rents Are Down<\/span><\/h2>\n\n\n\n

“The corporate landlord invasion or the financialization of rental housing is the most significant factor fueling these rental housing challenges,\u201d Dr. David Jaffee, professor of sociology at the University of North Florida and founder of Jax Tenants Union, told<\/span> Realtor.com<\/span><\/a> of his local market in Jacksonville, Florida. <\/span><\/p>\n\n\n\n

“Add on the rising cost of the other <\/span>basic<\/span> necessities, and workers will still be falling behind,” adds Jaffee. “At best, rents will stabilize at their already inflated levels.\u201d<\/span><\/p>\n\n\n\n

Overall, rents are down.<\/span> Apartment List<\/span><\/a> says the national median rent dropped 1% in November to $1,367, around $300 less than Realtor.com\u2019s present-day figure, marking the fourth consecutive month of decline.<\/span><\/p>\n\n\n\n

\u201cThat 18-to-34-year-old group \u2026 I think it\u2019s up to 32.5% of those now are living with family, and that\u2019s the highest it\u2019s been in a while,\u201d Grant Montgomery, CoStar\u2019s national director of multifamily analytics, told<\/span> CNBC<\/span><\/a>. \u201cI think it reflects high rental costs that have risen over the years, as well as the tougher job market for young folks just coming out of college.\u201d<\/span><\/p>\n\n\n\n

Strategies for Investors to Find Deals and Increase Cash Flow<\/span><\/h2>\n\n\n\n

For smaller landlords to compete with Wall Street for investments, the key is to be nimble, think outside the box, and act fast. <\/span><\/p>\n\n\n\n

These are a few strategies to employ. Some of these techniques have been around for a while and have run aground amid the inventory drop, but many buyers are still finding some success:<\/span><\/p>\n\n\n\n