How to Bridge the Affordability Gap in Real Estate

With the current state of our economy and housing market, many potential buyers are questioning if they can actually afford to purchase a home. Buyers are analyzing interest rates, housing demand, location, personal wages and credit scores. This is why it’s up to real estate experts to help them navigate the very common affordability gap.

The Affordability Gap and Real Estate

As the prices of homes increase based on housing demand, the amount of money a new buyer can be approved for can waver greatly. When a buyer’s wages no longer align with the price of real estate in the areas they are looking to live, or their debt to asset ratio becomes less than ideal, the affordability gap for them grows. Trained real estate professionals can help their clients bridge this gap in the following ways:

Be Straight Forward

There’s nothing worse than wanting something you just can’t have. This goes for home buying too. We all want to live in the home of our dreams—perfect location, perfect layout, perfect style, and perfect price tag. Unfortunately, when buying a home, many buyers need to waiver on some of their must-haves in order to make a purchase. As a real estate professional, it’s your job to keep reality at the forefront of their expectations. Based on their pre-approval rates, and their top priorities for a new home, it’s your job to help them find listings that make sense. This may mean:

• Showing homes outside of their ideal location
• Showing homes with less square footage
• Adding fixer-uppers to the list of potential purchases
• Navigating their finances to help them reduce some debt and increase assets

Your top priority with clients navigating the affordability gap should be having an honest, straight forward, discussion to maximize your time together. This will lessen frustrations when you begin the home searching process.

Manage Debt and Time

With home prices remaining high in many areas across the country and interest rates staying around 6.5%, your potential clients may be wondering if it’s even worth the expenditure. For real estate professionals, sometimes the best advice—and not always the easiest, is to tell your clients they need to focus on managing their debt and then circle back. What does this really mean? It will be unique to each client based on their current financial situation, but in many cases, it means to wait 3-6 months while reducing credit card debt to improve credit scores or taking time to save up money to put towards a down payment. If debt consolidation or wage appreciation isn’t an option, it may mean the buyer needs to lower expectations and look for homes that are more in line with what they can be approved for at the time.

Provide the Right Financial Support

Lenders are experts for a reason. The good ones know how to assess the entire financial picture of a potential buyer and offer options to help them meet their unique goals. Some financial options they may present to their clients are bridge loans, assumable mortgages, grant eligible properties, and debt consolidation.

By doing the right research, and discerning which lenders offer support or incentives for certain purchases, you can more effectively present options to help your client find a home within their means.

Regardless of the changes in the housing market, expert real estate professionals should understand how to manage the affordability gap for their clients and put in place a strategy to help them reach their home buying goals.

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