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Life Kit: Buying A House In An Impossible Market

MICHEL MARTIN, HOST:

Buying a home is a big part of the American dream. But that dream feels harder than ever to achieve right now. There is a record shortage of homes for sale. And with so many people eager to buy, bidding wars are breaking out. That sent prices to record highs. The average home in America now sells for more than $340,000. So if you're still in the market to buy a home, how do you navigate this seemingly impossible market?

With me now is Chris Arnold, NPR correspondent and frequent Life Kit host. Hi, Chris.

CHRIS ARNOLD, BYLINE: Hey, Michel.

MARTIN: OK. So the market is red hot. How should people be thinking about whether this is a good time for them to try to buy?

ARNOLD: Right. You know, there are these age-old truths that remain true no matter what's happening. So I talked to Bruce Marks about this. He's the founder of the Neighborhood Assistance Corporation of America. And they do homebuyer classes all over the country and try to help people on modest incomes to become homeowners, and they make loans to first-time homebuyers. So here's what he says.

BRUCE MARKS: So what I say to people out there now, it's always a good time to purchase if you can afford the payment, if you have a fixed rate, and if you're going to live in that property for a long period of time. By definition, you're going to generate equity because you're going to be paying down the principal over time.

ARNOLD: So at some point in your life, it's a really, really, really good idea to become a homeowner. The question is when? Because prices go up and down, and you don't want to get stuck losing money. And that's why - what Bruce was talking about - you want to be in there five years or more because, look; if in two years prices have fallen a bit, you don't want to be underwater and lose a ton of money. So the real key is you want to like it, you want to afford it, and you want to be there five or more years.

MARTIN: So obviously with prices rising, affordability is something that has to be on people's minds. So how much should people be stretching financially to make this happen?

ARNOLD: Right. I mean, that's getting a lot harder lately. I mean, this 19% rise in home prices in just one year, we've never seen that before. So the rule of thumb is still true, though, right? I mean, you do not want to spend more than one-third of your gross income on your mortgage payment, which includes your taxes and insurance.

MARTIN: So let's say you've really decided you really do want to buy a house right now. What are some good basic guidelines to keep in mind?

ARNOLD: Right. I mean, first, you really want to get preapproved for a mortgage. I mean, people think the first thing they want to do is go out on Zillow or whatever and start clicking around and looking at properties. You know, see how much anybody will loan you money to buy, right? And that'll teach you things. It might be, look; your credit score is really screwed up. You know, you should take six months or a year to clean that up, try to get that credit score better. You know, or it'll just give you a sense of what's possible. I really recommend that people take first-time homebuyer classes, you know, if you are buying a house for the first time. You can learn so much. They teach you about budgeting, and they can connect you with really good ways to get a mortgage as well.

MARTIN: I do want to go back to this whole question of who gets access to this. As we said at the beginning, I mean, this is the dream for many people. Historically, many groups, particularly people of color, have been shut out of this, particularly African Americans. And that was by law and by custom, OK? In the current housing market, is this making it even harder for people to buy a home? Are there options for people who really can't afford to participate in these pricey bidding wars, who maybe don't have family members who can kick in for the down payment and things of that sort?

ARNOLD: Yeah. I mean, absolutely it's harder, right? And like you're talking about, there's criticism and legitimate criticism that the traditional mortgage market does make it harder, say, for African Americans to qualify. And part of that's because so much is built around a couple of things - credit scores and how much of a down payment do you have. But - a lot of people don't realize this, but there are ways around that. There are nonprofits and other lenders that have a mission of loaning to lower-income populations who can qualify you on a different set of metrics. Bruce Marks at NACA does this. Here's how he explains what he does.

MARKS: At NACA, we do not consider one's credit score. But we pull the tri-merge credit report, which is the most comprehensive, and we look for the payments that that homeowner controls. Most importantly, did they pay their rent on time, their car payment, their utility payments? And we look at that to determine whether they're ready for homeownership.

ARNOLD: And beyond this one organization, people can go to their local city government. You can go to the HUD website at the federal level and find legitimate groups that do free homebuyer programs. They can connect you with really good alternative mortgage options to get low rates. But you really got to shop around, and you got to do some homework to find that stuff.

MARTIN: So, Chris, I'm thinking people might be listening to this and saying to themselves, I think I'll wait until things kind of cool off a little bit. When is that likely to happen?

ARNOLD: I think that's a huge question for a lot of people. You know, people are panicking, wondering, like, do I need to buy now? And I asked Lawrence Yun about this, who we just talked to from the realtors group. And here's what he says.

LAWRENCE YUN: We anticipate that the market will be steadily coming down as we proceed through the year and certainly by 2022, where the multiple offers will be far less prevalent. Homebuilders are building more homes.

ARNOLD: So he's saying, you know, even next year, more homebuilding is going to come online. He also thinks that some of the tight supply could be due to COVID. So wait a little while. Take that homebuying class, you know, and be ready so that when things do calm down, you're ready to jump on a good place that you like and buy it. And also, Yun polled his realtor group. And unlike the huge 19% jump in home prices over the past year, they're predicting over the next year about a 2% rise in prices.

MARTIN: That was NPR's Chris Arnold. Chris, thank you so much for joining us.

ARNOLD: Thanks, Michel.

MARTIN: If you want more advice about homebuying, Life Kit has several episodes to help you out. You can find them at npr.org/lifekit. Transcript provided by NPR, Copyright NPR.