The Expert Podcast

With interest rates, inflation, and higher home prices, there's a lot of talk about how there are no more entry-level or starter homes. Well, that may or may not be true. There’s been talk about vanishing inventory, soaring mortgage rates, and high prices, leaving little of the starter home idea. Some articles suggest that Americans are ditching their dreams of owning a house because of prices and interest rates. However, it's a little too early to give up—let's not give up yet.

Why do we say that? Certainly, prices are up, and interest rates are up, but if you do want to buy a home and you’re renting, there are plenty of homes available. We did a search using one of the most common online tools, and there are plenty of houses in and around the $200,000 range. This is in Melissa, Texas, which is one of the north suburbs of Dallas in a growing area north of Plano and Prosper. It's not a new house, but it has a nice yard, a lot of land, and it’s not the only one. If you look at that whole area, you’ll find similar options.

Here’s another one in Sherman, Texas, which is booming with tech development. It's priced at $160,000 for a 3-bedroom, 2-bath, 1600 square foot home. It’s an older home, but it has some character. Or, how about this one priced at $205,000, 3 bedrooms, 2 baths, and 1,000 square feet right next to a lake? Again, we just picked one area in North Dallas, and certainly, not everyone wants to move to this area. However, I can guarantee you that no matter what area of the country you look at, close to almost any area, you can find homes in the $200,000 to $250,000 range.

So, what does that mean? It’s probably not going to be your dream house. It’s probably not something you'd see on HGTV, but it is something that you could own, where your mortgage payments go to yourself, not to a landlord. More importantly, your monthly payments aren’t going to go up. Rent prices are rising, and they always have. Even if they only go up 5% or 6% a year, with inflation, your rent could increase by $70, $80, or $100 a year, sometimes even $200. In contrast, if you have a mortgage, your payment stays the same. At some point, 20 or 30 years down the road, depending on how long your mortgage is, your mortgage goes away, and it’s free after that.

Certainly, prices are higher and interest rates are higher, but don’t give up on owning a home because there are ways to do it. If you're waiting for house prices to crash or interest rates to go down, that's a strategy you can use. There are schools of thought on both sides. Interest rates probably won’t come down anytime soon, as the FED just announced another 75 basis points increase. Because of limited inventory, house prices probably won’t crash either. There may be some reductions and more importantly, a lack of increases, but they may or may not crash. That’s a personal decision. However, if the reason you’re not getting into the market is that you don’t feel like you can find a house or afford it, try doing a search with an upper price limit that’s even below what you’re willing to pay. If you’re looking for a $400,000 or $350,000 house, try searching for $300,000 or $275,000. I guarantee there are homes out there. You might have to look through some cosmetic issues, like needing new carpet or paint, but you can take care of those at your convenience and much cheaper than buying a house that's already turnkey.

Look at all those home-flipping shows—they do nothing but cosmetic work. They take a house they pay $200,000 for, put $30,000 into it in cosmetics (paint, carpet, landscaping, new blinds, etc.), and now it’s a $380,000 house. You could do the same thing. You can flip it yourself—buy it cheap, use sweat equity, buy materials at your convenience over time. It’s livable in the meantime, and you can end up with a $380,000 house that you bought for the low $200,000s. Or pick any number gap that you like. That’s just one person’s opinion. Let us know what you think in the comments about the nature of the housing market and whether or not buying a cheaper house is a good strategy.