Market Update July 26, 2024

The Future of Affordability

In this month’s update, I want to address a topic that has been frequently discussed over the last couple of years: affordability.
Home prices have been rising year over year for quite some time. This, combined with rising interest rates, has created an affordability issue for many homebuyers.
Cities have attempted to combat this issue, but the solutions implemented have not been very effective. Many cities have approved more building permits in an attempt to increase inventory. However, as a friend of mine observed, it’s not just a lack of inventory, but a lack of affordable inventory that makes buying a home difficult.
Simply building more homes will not solve the affordability issue if the homes being built are not affordable. Entry-level new construction homes start at $350,000, and that’s only if you are well outside the Twin Cities. In many markets, new homes cannot be purchased for less than $400,000-$500,000.
In my view, to address affordability, we need to build homes that are more like the ones currently affordable. Smaller homes on smaller lots, with or without garages. Unfortunately, building codes in most cities no longer allow for these types of homes to be built. While some cities have heard the argument that changing building codes is necessary to truly solve affordability, most are not interested in doing so.
Home values continue to remain strong as demand remains high in most price points, especially in lower price points.