High-interest rates, property taxes and insurance, plus low housing inventory, are some of the challenges facing today’s homebuyers.

Rising home prices, increasing demand for housing and low inventory levels, while posing obstacles for homebuyers, are signs of a thriving economy. According to the National Association of Realtors (NAR), existing-home sales surged 9.5% in February to a seasonally adjusted annual rate of 4.38 million – the largest monthly increase since February 2023. This surge in real estate activity reflects consumer optimism but also drives economic growth through increased construction, job creation and spending in related industries such as home improvement and furnishings.

As we continue to navigate the intricate landscape of the housing and mortgage industry, it becomes increasingly evident the Southeast region of the United States is facing a myriad of challenges and opportunities.

Lack of Affordability and Elevated Interest Rates

The dream of homeownership remains unattainable for many in the Southeast as housing prices continue to outpace income growth. In the third quarter of 2023, research by Statista indicates that house price growth has outpaced income growth by almost 33% since 2015.¹ The imbalance between the two factors has led to a significant lack of affordability, with median home prices soaring beyond the reach of average households.

Compounding this challenge is the burden of elevated interest rates, which have been on a gradual incline in recent years. According to the National Association of Realtors (NAR), the median existing-home price in the South reached $345,100 in January 2024, representing an increase of 4.1% from the previous year.² And, mortgage rates have climbed, with the average 30-year fixed-rate mortgage hovering around 7% in January 2024, according to Freddie Mac. This comes after a steady decline from a peak of 7.79% in October 2023. These factors create a barrier for prospective homebuyers, particularly first-time buyers, who often lack substantial down payments and are facing tighter lending standards.

Source: National Association of Realtors: https://www.nar.realtor/blogs/economists-outlook/latest-existing-home-sales-data-graphs

Currently, there are two proposed tax credits for current and prospective homeowners to ease affordability and stimulate the housing market. The White House outlined a $10,000 tax credit for families selling their starter homes. The aim is to stimulate housing market activity, as many buyers are hesitant to move due to the prospect of higher mortgage rates. Additionally, the Administration is proposing a $5,000 tax credit for first-time homebuyers that can be used for mortgage payments.

Impact of High Insurance Rates and Taxes

In addition to affordability constraints, high insurance rates and property taxes further exacerbate the challenges faced by homebuyers in the Southeast. Property taxes vary across states and localities within the region, with some areas imposing hefty tax burdens on homeowners. For first-time buyers, these additional expenses can tip the scales, making homeownership financially untenable.

The Tax Foundation's State and Local Tax Burden Rankings report underscores the significance of this issue, revealing that several Southeastern states, including Alabama, Arkansas, Louisiana, Mississippi and Oklahoma, rank among the top 10 states with the highest state and local tax burdens (see graph below). This fiscal strain not only impacts individual buyers but also influences housing market dynamics, contributing to stagnation in inventory levels and constraining mobility.

Resource: Tax Foundation: https://taxfoundation.org/data/all/state/2023-sales-taxes/

Lack of Inventory

The scarcity of housing inventory further compounds the challenges in the Southeast's housing market. A combination of factors, including limited new construction, reluctance among existing homeowners to sell, and increased demand fueled by demographic trends, has resulted in a persistent shortage of available homes. Data from the National Association of Home Builders (NAHB) indicates that the inventory of homes for sale in the South stood at a historically low 2.6 months' supply in December 2023, well below the optimal balance of a six-month supply. This imbalance not only creates competition among buyers but also contributes to rapid price appreciation, further squeezing affordability for those entering the market.

Exploring Options

Not all hope is lost for potential homebuyers, though. Consumers can take several steps to make homeownership dreams a reality. It is crucial to carefully manage finances by creating and sticking to a budget, saving for a down payment and improving credit scores. Researching and understanding various mortgage options and government assistance programs can also be beneficial. While not always ideal, considering alternative housing arrangements such as purchasing a smaller home or “fixer-upper,” exploring different neighborhoods, or even considering rent-to-own options can provide more flexibility. Finally, staying informed about market trends, seeking advice from real estate and banking professionals, and being patient while navigating the buying process can all contribute to achieving the goal of homeownership in challenging times.

Navigating the Path Forward

In light of these challenges, Cadence Bank adopted a strategic approach that addresses the evolving needs of homebuyers while safeguarding the stability of the mortgage industry. This entails leveraging innovative mortgage products. We offer low down payment products and down payment assistance programs to enhance accessibility for prospective buyers. Collaboration with policymakers and stakeholders is essential to enact reforms aimed at fostering housing affordability and stimulating supply-side initiatives. This includes streamlining regulatory processes, incentivizing housing development, and implementing targeted tax relief measures to alleviate homeowners' burdens. As we confront the complexities of the housing and mortgage industry in the Southeast, Cadence remains steadfast in its commitment to facilitating responsible homeownership and driving economic prosperity across the region. By embracing innovation, fostering collaboration and advocating for systemic change, we can chart a course toward a more equitable and sustainable housing market for generations to come.

Citation:

1. Statista Research Department: The house price to income ratio in the U.S. increased in 2023, after falling slightly in the second half of 2022. The ratio measures the development of housing affordability and is calculated by dividing the nominal house price by the nominal disposable income per head, with 2015 set as a base year when the index amounted to 100. In the third quarter of 2023, the index score amounted to 132.5, which means that house price growth has outpaced income growth by almost 33% since 2015.
2. In January, all four regions showed price growth from a year ago. The Northeast had the largest gain of 10.1%, followed by the Midwest with an increase of 7.6%. The West increased 6.3% while the South region rose by 4.1%.

    

References:

• National Association of Realtors (NAR)
  • https://www.nar.realtor/blogs/economists-outlook/latest-existing-home-sales-data-graphs
• Freddie Mac - Tax Foundation's State and Local Tax Burden Rankings
  • https://www.freddiemac.com/pmms
• National Association of Home Builders (NAHB)

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.