President Joe Biden‘s administration is reviving—and strengthening—a fair housing rule to combat racial discrimination. Former President Donald Trump had cut the rule while in office.
The U.S. Department of Housing and Urban Development announced on Thursday that it has proposed bringing back the Affirmatively Furthering Fair Housing rule. The rule had forced cities accepting federal housing money to assess and address local housing discrimination in an effort to rectify decades of redlining and segregation. Its intention was to have communities change their zoning laws to allow more apartment and condo buildings and smaller, affordable, single-family homes to go up.
“This proposed rule is a major step toward fulfilling the law’s full promise and advancing our legal, ethical, and moral charge to provide equitable access to opportunity for all,” HUD Secretary Marcia L. Fudge said in a statement released on Thursday.
Many wealthier suburbs had fought these changes as residents worried their property values could fall as a result. The rule would likely have resulted in smaller, cheaper homes going up in these areas geared toward renters and buyers with potentially lower incomes. This could have altered the racial and socioeconomic makeup of these communities, essentially desegregating them.
Trump had tweeted the rule was “having a devastating impact on these once thriving Suburban areas,” on June 30, 2020.
The rule was a provision of the Fair Housing Act of 1968 that was introduced by President Barack Obama‘s administration in 2015.
It’s an effort by the federal government to reverse some of the damage it did when it prevented many people of color from accessing low-cost mortgages and barred them from buying and living in predominantly white communities through redlining and segregation.
The plan would require participants to submit their plans to HUD every five years as well as progress evaluations.
“They’re trying to require the recipients of these HUD grants to be explicit about what they’re doing to not just combat active discrimination, but to promote greater access to groups who have been historically excluded from buying and renting access,” says Evan McKenzie, a political science professor at the University of Illinois at Chicago. “What they’re going to do is shift the resources to the people who need it more.”
But it’s unclear if the rule will have any teeth, says McKenzie. That will depend on how communities are held accountable.
“People just learn how to write the correct words in the grant applications,” he says. “It requires follow-up and implementation.”
The numbers: A dip in mortgage rates prompted mortgage demand to rise a seasonally adjusted 27.9%
As mortgage rates dropped across the board, demand for both purchases and refinancing increased. That pushed the market composite index up, a measure of mortgage application volume, the Mortgage Bankers Association (MBA) said on Wednesday.
The market index rose to 238.7 for the week ending Jan. 13, up 27.9% from a week earlier. A year ago, the index stood at 593.7.
Key details: The refinance index jumped 34.2% in the past week, but was down 81% compared to a year ago.
The purchase index—which measures mortgage applications for the purchase of a home—rose by 24.7% from last week.
Mortgage rates fell across the board.
Watch: 6 Crucial Tips for Bringing Down Your Mortgage Rate
The average contract rate for the 30-year mortgage for homes sold for $726,200 or less was 6.23% for the week ending January 13. That’s down from 6.42% the week before, the MBA said.
For homes sold for over $726,200, the average rate for the 30-year was 6.08%.
The big picture: All those buyers and homeowners waiting on the sidelines found their moment this past week, as a dip in rates provided an opportunity.
With rates expected to come down further, this trend of mortgage demand running hot may continue in the meantime.
What are they saying? “Mortgage rates are now at their lowest level since September 2022, and about a percentage point below the peak mortgage rate last fall,” Mike Fratantoni, senior vice president and chief economist at the MBA, said.
“As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time homebuyers,” he added.
Market reaction: The yield on the 10-year Treasury note fell below 3.5% in early morning trading Wednesday
However, there are still places where here first-time buyers might have an easier time becoming homeowners. These are the towns and cities where prices are reasonable, there are more homes to go around, and newbies won’t have to sacrifice their social lives or suffer long commutes.
The Realtor.com® economics team identified these top real estate markets for first-time homebuyers in 2023. More than half are located in the Northeast, mostly in smaller cities that aren’t far from larger urban areas where there are plenty of jobs, things to do on a Saturday night, and lots of nearby outdoor amenities. Some of the top picks are more rural areas that are being built up, while others have struggled in recent years and are coming back up.
Their biggest draw is that all of these places offer more affordable homes for sale, compared with their regions of the country.
“Midsized towns with lots of amenities for young people and more affordable homes are great places for first-time homebuyers, especially in 2023,” says Realtor.com Senior Economist George Ratiu. “They do have local employment markets, which are strong enough to support young professionals getting a start in their careers.”
To come up with the list, the Realtor.com economics team looked at places with at least 5,000 residents in the 100 largest metropolitan areas. Then the team factored in the percentage of 25- to 34-year-olds living there (prime first-time buyer years), average commute times, and unemployment rates in the larger metropolitan area. (Metros include the main city and surrounding towns and smaller urban areas.)
Realtor.com considered the number of homes for sale per 1,o00 households and affordability measured by home prices compared with incomes of 25- to 34-year-olds in the 12 months ending November 2022. The economics team also included the number of food and drink establishments per 1,000 households and forecasted sales and price growth in 2023.
So what are the top real estate markets for first-time buyers this year?
The historic seaport city of Portsmouth, which sits across the Elizabeth River from the better-known Norfolk, VA, has become popular with first-time and other buyers for one big reason: It’s still affordable for the desirable Hampton Roads region.
“If you’re trying to save a little money on your mortgage, you can live here and still be able to commute,” says associate real estate broker Heidi Johnson, of Bunch Real Estate.
The city moved up from the fifth spot on last year’s list of the best places for first-time homebuyers to take first place. There are plenty of good jobs, including many military ones, in the city of about 100,000 thanks to the naval medical center and the Coast Guard base. There is also an international port as well as shipyards based there with a new casino opening there this month.
“The military presence keeps our area pretty stable,” says Johnson.
Younger buyers eager to go out can hit up the Olde Towne section of downtown Portsmouth, which offers restaurants, wine bars, shops, and the Children’s Museum of Virginia.
Many homes here date to the 19th century; some need plenty of work, while others have been restored. There are also condos, townhomes, and some new construction at “a good variety of price points,” says Johnson. There are even million-dollar-plus houses along the area’s waterways.
The majority of properties for sale in the city are single-family abodes. This three-bedroom, 2.5-bath Colonial is on the market for just over $300,000—and the seller is offering to help cover closing costs for those who pay full price.
Those looking for homes within commuting distance of Madison, about 30 minutes southwest, might want to consider DeForest, a small town on the Yahara River.
The giant, pink elephant sculpture outside of a local gas station is a popular attraction with tourists and locals. The town is also home to Elenbach’s Cheese Chalet, which specializes in Wisconsin-made cheeses, selling more than 400 varieties. And every June, the city hosts its Dragon Art Fair & Silent Auction featuring wares from local artists, live music, and plenty of food.
While there are condos, townhomes, and single-family homes, including this three-bedroom, two-bathroom house on a half-acre for $375,000, most of the listings in the town are for land in newly planned communities. Buyers seeking new construction can find plenty of lots; the typical third of an acre parcel is priced at around $125,000, on the southeastern side of town.
The suburban town, home to the Bradley International Airport and the New England Air Museum, has plenty of large, older, quintessentially New England houses within walking or biking distance of the “cute” downtown, says Amy Chorew, a local Realtor with Better Homes & Gardens Real Estate.
“The Hartford area has quite a few cool towns,” says Chorew. She touted the area’s proximity to New York City and Boston—within two hours in either direction—and the tech companies that have moved into the area.
“There are some really interesting businesses coming into Connecticut,” she adds. “We’re bringing back the young people.”
Many of those moving to the area are coming from Boston and New York City seeking a quieter and more affordable place to raise their families.
Buyers can find older single-family homes spanning between 1,700 and 2,200 square feet on about a quarter-acre lot for between $250,000 and $400,000, according to Chorew. There are also condos and new construction. This newly remodeled, four-bedroom, 2.5-bath Colonial is listed for under $300,000.
Settled in 1623, this historic, blue-collar town was recently named the cheapest city in New Jersey. It’s located just across the Delaware River from Philadelphia—and boasts a median list price that’s a fraction of the City of Brotherly Love’s. (The median price in Philly was about $272,000 in the 12 months ending in November 2022.)
The suburban town has seen its share of struggles over the years, but the prices are hard to beat. It was the lowest-priced city on our list.
Just 15 minutes south of Oklahoma City is the suburb of Moore. The former railroad town is known for its parks, aquatic center, and variety of things to do—including its dinner theater, ax throwing club, and trampoline park. Nearly 17% of the local population is between the ages of 25 and 34, according to the Realtor.com analysis.
However, Moore is located in “Tornado Alley” and has been affected by the deadly twisters. A 1999 tornado killed about three dozen people and injured hundreds more. In 2013, another twister devastated the town and claimed the lives of about two dozen individuals.
There were more homes for sale in the city than in many of the others on the list, a mix of new-construction and older, single-family homes. Most of the newly built houses were around $300,000 or so, with larger ones going for more and smaller ones listed for less.
Magna has fallen a bit from its perch as the No. 1 destination for first-time homebuyers last year. But it still scored high in our rankings due to its affordability compared with Salt Lake City, just 20 minutes west, and the relatively high number of homes for sale compared with the other places on our list.
The city has undergone a bit of a renaissance in recent years as more first-time homebuyers—as well as older buyers seeking to downsize—have relocated here in search of cheaper homes have moved in. Builders have responded by putting up new communities of townhomes and single-family homes.
“You are close to everything. You’re close to the airport, you’re close to the city, good interstate access,” says real estate broker Joel Carson, of Utah Real Estate in nearby Salt Lake City. He added it’s not far from several large ski resorts.
Most of his buyers are young couples planning for families.
Eggertsville is a suburb about 15 minutes northeast of Buffalo, near the Canadian border in way upstate New York. It’s benefited from its proximity to Buffalo, another metro that was named one of the top real estate markets of 2023 by Realtor.com.
Real estate prices are expected to grow by 6% in Eggertsville this year, while sales are anticipated to rise 6.3%, according to Realtor.com analysts. This might not sound like much after the COVID-19 pandemic–fueled real estate frenzy of the Past few years, but the national market has since corrected and prices have begun to hold steady. That makes increases like these notable.
Buyers will find mostly single-family homes in Eggertsville. Those on a budget who don’t mind doing some updating can check out this four-bedroom, two-bathroom home built in the 1940s for about $175,000. Or they can splurge for a 4,500-square-foot, brick home on more than an acre of land with an in-ground, heated pool for roughly $700,000.
Median home list price: $228,300 Metro: Albany, NY
Less than a 15-minute drive from New York’s capital of Albany and right across the Hudson River from the city of Troy lies the “Arsenal City,” as Watervliet is known. It earned that nickname for being the site of the Watervliet Arsenal, which manufactured cannons during the War of 1812.
The Hudson River still plays a strong role in the city. The Hudson Shores Park has undergone a revitalization by installing a farmers market, showcasing live music, and holding events like an antiques car show.
The housing stock is mostly made up of single-family and multifamily homes. Buyers seeking some rental income to help with their mortgage can check out this two-family house, which has separate units with three bedrooms and one bathroom in each and a fenced yard. It’s on the market for just over $250,000.
The small town of Mattydale is a more rural suburb just north of Syracuse near Onondaga Lake. Its claim to fame is having been the one-time home to L. Frank Baum, who wrote “The Wonderful Wizard of Oz.” A middle school now sits on the site of his former home.
The town has the usual amenities that homebuyers want, including a movie theater, restaurants, and bars. As a bonus, it’s right near the Syracuse Hancock International Airport.
Most of the homes for sale in Mattyvale are smaller, single-family homes priced below $150,000. This cute three-bedroom, 1.5-bath home spanning about 1,600 square feet is on the market for $145,000.
Median home list price: $329,900 Metro: Boston, MA
Somersworth, about a half-hour northwest of Portsmouth, NH, and about two hours north of Boston, has taken off in recent years. The area is home to an old Air Force base that was converted into the Pease Tradeport Portsmouth, an industrial and commercial space that serves as a research hub providing lots of good local jobs.
But unlike many other nearby communities, Somersworth, which is still a bit rough around the edges, remains relatively affordable for the region.
“Somersworth is benefiting from all boats rising,” says real estate agent Maria Shute, of Re/Max On the Move. Many of her buyers are coming from Boston, especially recent college graduates who want to remain in the area. “The sea coast of New Hampshire is extremely desirable.”
The real estate market isn’t as heated as it was over the past few years, but it hasn’t stalled either, she says. “The multiple offers won’t be 25. You might have three.”
A sprawling estate complete with a huge home office and a 2,500-square-foot gym in Waco, TX, is this week’s most popular home on Realtor.com®.
Located in the town made famous by “Fixer Upper,” the five-bedroom home near Lake Waco offers more than 11,000 square feet of living space. Based on the listing photos, it could use more than a little help from Chip and Joanna Gaines. We spotted wild wallpaper on the kitchen ceiling, heavy drapery everywhere, and carpet we’re fairly certain dates to the 1980s.
On the plus side, the estate provides an ideal space to work remotely. The executive suite within the residence boasts a “grand conference room with beautiful, stained wood cabinetry and bookcases, a stately private office with a gas fireplace, an additional office, and an adjacent suite with kitchenette, full bathroom, and a private entry,” according to the listing.
Other digs that drew your clicks include a contemporary cabin in the Colorado woods, an affordable Craftsman bungalow in Ohio, and a New Jersey home featured in “The Sopranos.”
For a full look at this week’s 10 most popular homes, just scroll on down.
Why it’s here: This oceanfront estate in Southern Maine overlooks Phillips Cove in Cape Neddick.
Custom-built in 2018, the six-bedroom home boasts 7,022 square feet of magnificent living space. Ornate details include radiant heating, four fireplaces, vaulted ceilings with solid wood trusses, walls of windows, and two primary suites. An enormous kitchen was designed for entertaining, featuring two islands with quartz countertops, a walk-through pantry, and a beverage bar.
There’s also a saltwater pool on the 1.81-acre lot, as well as a pool house, covered hot tub, and three-car garage.
Why it’s here: Get to the point! Not your typical cabin in the woods, this secluded residence built in 1970 comes with an enormous barn.
Tucked away on 2.76 acres, the three-bedroom home features lots of windows to take in the views of Hahn’s Peak and Steamboat Lake. Highlights include a living room with a wood-burning stove and an updated kitchen with stainless-steel appliances.
The price of the cozy hideaway represents a recent $25,000 discount.
Why it’s here: Newly constructed by the award-winning builder Build Nashville, this thoroughly modern mansion boasts plenty of glass.
The five-bedroom home is loaded with luxury amenities. We love the soaring cathedral ceilings with exposed beams and the stylish maple floors. There’s also a lovely first-floor primary suite with an enormous walk-in closet. The second suite is upstairs and features a beverage center.
Why it’s here: This massive mansion in Big Sky Country sits on nearly 46 acres filled with aspens, pines, and a creek.
Located 10 minutes from downtown Bozeman, the five-bedroom residence is rustic yet modern. Built in 2008, it features wood walls, coffered ceilings, and radiant-heat flooring. A stylish kitchen boasts dual ovens built into a stone wall. Two guesthouses can accommodate friends and family, and a vintage barn offers plenty of room to store recreational gear.
Why it’s here: This budget-friendly, two-bedroom cabin comes with 8 acres, including a stocked pond.
If privacy and affordability are what you’re looking for, this homey homestead is ideal. It features a two-story living room with a floor-to-ceiling stone fireplace and a cute kitchen with a center island.
There’s plenty of acreage for a new owner to set up a hobby farm.
Why it’s here: Modern in Mississippi! This reasonably priced contemporary dwelling has been entirely updated.
Built in 1979, the bright and airy three-bedroom home features plenty of stylish touches. From the two-story windows to the spacious terraces to the elegant kitchen with an enormous island, the home is designed to appeal to all buyers.
The primary suite comes with double vanities, a claw-foot tub, and an enormous walk-in closet. Upstairs, an open landing could serve as a home office or play area for the kids.
Why it’s here: While it will need some cosmetic updates, this sprawling, 11,112-square-foot ranch home features a Texas-sized gym complete with a full bathroom and sauna.
Other luxury amenities include a sunny parlor, a chef’s kitchen with a walk-in refrigerator/freezer, and a brick-walled breakfast room. Built in 1949, the home features restored hardwood flooring, vaulted ceilings, ornate fireplaces, and built-ins.
The 3-acre property comes with a heated pool with a cabana, an outdoor kitchen, a lighted tennis court, a gaming room, a climate-controlled garage, and several outbuildings.
However, mortgage rates are now coming down. And the slowdown in inflation could enable them to fall even further—perhaps even below 6%.
Mortgage rates averaged 6.33% for 30-year fixed loans in the week ending Jan. 12, according to Freddie Mac. Meanwhile, Mortgage News Daily, which reports average rates for the day instead of a whole week, had them at 6.07% as of Thursday afternoon. That’s quite a difference from when rates topped 7% just two months earlier.
The typical monthly mortgage payment is now below $2,000, a psychological milestone for many cash-strapped homebuyers.
“Let’s celebrate some good news. List prices are down, mortgage rates are down,” says Realtor.com® Senior Economist George Ratiu. “With inflation showing a tangible slowdown, I do expect mortgage rates to follow suit in the months ahead. The question is when.”
Mortgage rates have been rising as a result of the U.S. Federal Reserve hiking its own short-term interest rates to combat inflation. The Fed’s actions appear to be working: Inflation stood at 6.5% in December. While still high, it’s coming down from 7.1% year over year in November and well below the 9.1% peak in June. This could cause the Fed to ease up on its rate hikes, which could result in mortgage rates coming down.
“We are seeing the effects on demand in the most interest-sensitive sectors of the economy, such as housing,” Federal Reserve Chair Jerome Powell said at a press conference after the Fed’s Dec. 14, 2022, meeting.
While the Fed’s rates and mortgage rates are different, they have been moving in the same direction. So when the Fed jacks up rates, mortgage rates typically follow. They more than doubled last year and are up from the mid-3% range just one year ago. The increases have made monthly housing payments so much more expensive, pricing many buyers out of homeownership.
“If inflation continues to fall at the current pace, we could possibly see mortgage rates under 6% by the tail end of February,” says Ratiu. He expects they will remain in the 6% to 7% range for the next few weeks until it becomes clear that inflation is definitively on the way down.
December brought good tidings to homebuyers in the real estate market.
Nationally, median home list prices dropped about 11% from their peak over the summer to hit $400,000 in December, according to a recent Realtor.com® report. While prices were still up by about 8.4% year over year in December, this was the first time in a year that they rose by only single digits.
In another holiday gift for home shoppers, the number of properties for sale nationally shot up more than 50% compared with a year ago. And homes are sitting on the market for longer, giving buyers an opportunity to think about whether this is the right home for them instead of having to put in an offer on the spot.
Mortgage interest rates even dipped from over 7% to the 6% range last month. Rising rates were responsible for cooling off the housing market, as many buyers couldn’t afford the higher monthly payments on a home after rates more than doubled over the course of 2022.
“Prices are moderating. Mortgage rates came down. And there are more homes for sale,” says Realtor.com Chief Economist Danielle Hale. “It’s a continuation of what we’ve been seeing.”
Price increases are slowing as the hot real estate market fizzles
Higher mortgage rates put a stop to the whiplash-inducing price increases and manic bidding wars that defined the COVID-19-era real estate market. Back when rates were in the 2% and 3% range, many buyers could afford the higher home prices because their monthly mortgage payments were low. But when rates spiked, so did mortgage payments—and those higher prices suddenly became unmanageable for many buyers.
That lack of buyers resulted in about 13.6% of all home sellers reducing their listing prices in December, up from 7.1% who made price cuts a year earlier.
Median listing prices fell in nine of the 50 largest metropolitan areas year over year in December. New Orleans saw the largest price drop, at -4.4% year over year in December. It was followed by Denver (-4%)= and Austin, TX (-3.4%).
However, “Even though prices are coming down in some places, mortgage payments are still higher because mortgage rates have moved up so much over the last year,” says Hale.
Monthly mortgage payments were about 59% larger than they were in December 2021. Buyers are financially tapped out, paying nearly $750 more a month for a median-priced home. (This assumes they put down 20% and doesn’t include taxes, insurance, and homeowners association fees.) That’s significantly higher than rising rents and inflation.
On the other end of the spectrum, the largest annual increases in listing prices were in Milwaukee (46.2%), Memphis, TN (34%), and Miami (20.4%). The first two are lower-priced areas, where median list prices were $375,000 and $325,000 respectively, well under the national price tag of $400,000.
Meanwhile, prices continued to rise in Miami, one of the real estate market darlings of the pandemic era that attracted scores of companies and new residents relocating to its sunny shores over the past few years. The median list price in the Magic City metro area was $590,000 in December.
More homes are for sale, but not enough to end the housing shortage
Since the pandemic began and buyers battled it out for just about every home that hit the market, housing inventory has been at crisis-level lows. It seemed that just as soon as an attractive property went up for sale, it was under contract by the end of the weekend—if it even made it that long. However, that frenzy has mostly evaporated, resulting in more available properties.
There were 54.7% more homes, or 244,000 additional properties, on the market in December than there were last year. While that sounds great, it’s still a whopping 38.2% less than in the years preceding the pandemic from 2017 to 2019.
“It’s a big step in the right direction, but the market isn’t back to normal yet,” says Hale.
And although overall housing inventory is rising, the number of new listings was down 21% year over year in December. Sellers are reluctant to give up their low mortgage rates by selling their homes and then having to take out a new loan at a higher rate to purchase a new home.
“If they were to sell their home, they have to find somewhere else to go,” says Hale. “And it’s still not an easy market for most buyers.”
Add in recession fears, and many would-be buyers are simply putting their house hunts on hold. That’s resulted in more homes staying on the market for longer, a median of 67 days—11 days longer than in December 2021—adding to the desperately needed housing inventory.
In the Western region of the country, where prices are also the highest, there was a 110.2% annual increase in inventory. Raleigh, NC, experienced the largest increase in homes on the market, at 226.2% in December, followed by Nashville, TN, at 226%, and Austin, TX, at 186.6%.
As Hale explains, “It’s clear buyers are pulling back and sellers are not enthusiastic about this housing market.”
The report by Jain Family Institute, a New-York based research organization, found that the pause in monthly repayments allowed borrowers to budget more towards buying a home.
“Benefiting from the student-loan repayment pause, which has eased debt burdens for many, young borrowers were able to participate in the recent housing boom,” the report stated.
The authors of the report used anonymized data from Experian Credit Solutions, of one million debtors’ information for each year.
‘Benefiting from the student-loan repayment pause, which has eased debt burdens for many, young borrowers were able to participate in the recent housing boom.’
— Report by Jain Family Institute
The rate of homeownership of Americans aged between 18 and 35 years of age was 17.8% in 2020.
After the payment pause kicked into effect that year, homeownership increased to 18.5% in 2021, the report found, and 18.9% in 2022.
Homeownership rates of young borrowers rose in 49 states, and in D.C., between 2020 and 2022, the report found.
Arizona was the only state where homeownership was lower.
The authors attributed the boost in homeownership to the government’s freezing of interest on student loan payments since 2020.
“Effective policy responses can lessen the negative impacts of the student-debt crisis,” Eddie Nilaj, co-author of the report, told MarketWatch, “not just in relieving debt, but enabling home ownership and economic mobility, for example.”
Homeownership rates were the highest in more affordable markets.
This includes Iowa, where nearly 31% of young student debtors owned a home, followed by South Dakota and North Dakota, both at roughly 29%.
Homeownership rates among the young continued to be lowest in New Jersey, New York, and D.C.—no surprises there, given how expensive homes are in those states.
The homeownership rate in New Jersey was 15%, and in New York, 12%.
Interestingly, the state that saw the biggest jump in homeownership rates among young buyers was Alaska—from 16.7% rate in 2020 to 22.6% rate in 2022.
Why can more afford a home now?
A big reason why the student-loan repayment pause helped young Americans afford homes was due to how it changed their debt-to-income ratio.
Prior to the pandemic, JFI explained, banks had limited lending to borrowers with high DTI ratios and low credit scores. Since payments were paused, borrowers no longer made monthly student-debt payments yet maintained the same income, and hence saw their DTI ratio rise. This allowed them to qualify for certain home loans.
“The suspension of repayments for federal student loans and interest accrual in general has been a boon for some young borrowers looking to become homeowners,” the JFI authors stated.
And “comprehensive student-debt relief will aid more young borrowers in becoming homeowners,” they added.
Nilaj added that “the danger of not doing more is that we’ll see a return of the previous trend of persistently increasing debt burdens.”
Meanwhile, the U.S. government recently made sweeping changes to the repayment mechanism in an attempt to lower the burden on debtors dealing with a decades-old system.
Reforms include allowing individuals to not make payments on their student debt until their annual income exceeds $30,500, allowing monthly payments to drop from 10% of a borrowers’ discretionary income to 5%, and setting limits on accrued interest.
Starting a family is a huge undertaking, and would-be parents have tons of things to stress out over—everything from schools to extracurriculars for their kids, to finding the best possible home for their family to grow into. It’s hardly surprising that some places are far more family-friendly than others. But which state checks the most boxes?
Personal finance website WalletHub has crowned Massachusetts the best state to raise a family, according to a recent report. The Bay State was followed by Minnesota, New York, North Dakota, and Vermont.
These aren’t states that normally top real estate “best of” lists—they’re not necessarily the cheapest, and they might not have the sunniest weather. But as WalletHub puts it, what’s more important is a place that’s “affordable to live in during this time of high inflation but also offers quality schools, health care, and entertainment.”
The analysts at WalletHub grouped various factors into five categories—family fun, health and safety, education and child care, affordability, and socioeconomics—to come up with the rankings. Massachusetts came in second in two of them, affordability as well as education and child care, and ranked fifth in health and safety.
Massachusetts is known for being pricey—a metro area just over the state border in New Hampshire has been the Realtor.com® “hottest metro” for nearly a year. That’s mainly because it appeals to buyers fleeing the high cost of housing in the Boston area.
The state has the third-highest median home list price in the nation, at $669,500 in November, right behind Hawaii and California, according to the most recent data from Realtor.com. But the commonwealth actually scores quite highly when factoring in not just home and rental prices but also residents’ median credit scores, debt loads, the percentage of families who save for their children’s college education, average annual family health insurance costs, and more.
Similarly, the education and child care category takes into account not just the quality of the public schools, but also the graduation rate, child care services, and the quality of local day care providers.
“Places with low housing costs can be good for families. However, affordable real estate may reflect the fact that a community is far from employment and educational opportunities,” Lauren Jones, an associate professor at Ohio State University, said in a statement. “What you save in housing costs you will end up paying in transportation time and costs. Low housing costs may also reflect low property tax rates, which may mean that less social supports are in place.”
Marjorie Youngren, a Realtor® who runs a William Raveis real estate office on the north shore of Boston, raised her own family in Lynnfield, MA. She calls it a “charming quintessential New England town” where locals enjoy being close to beautiful beaches in the summer and leaf-peeping in the fall.
The state might not be the top choice of someone looking for the cheapest cost of living, Youngren acknowledges, but many people are OK with that.
“Massachusetts residents know that good schools are important and they also keep our property values up,” says Youngren. “Most young families are extremely concerned with making sure that they move to a town with a good school, and there are plenty here.”
The worst states for families on the WalletHub list were Mississippi, New Mexico, and West Virginia.
About 43% of those who took out an ARM regretted it, according to a recent survey by U.S. News & World Report. ARMs work by offering a fixed mortgage interest rate, usually lower than a 30-year fixed-rate loan, for a period of several years. Then the rate resets, usually annually, according to what interest rates are doing at the time. The popular 5/1 ARM, for example, will have a fixed rate for five years that then resets every year thereafter based on the market.
That’s where folks can get themselves in trouble if they can’t afford their new mortgage payments when rates increase.
“ARMs can still be a great tool for the right buyer,” says Erika Giovanetti, a loans expert at U.S. News & World Report. “Especially now, they are a really good way for people to be able to afford those monthly payments, but people need to be aware of the exact terms they are agreeing to in the loan agreements. They also need to be able to have a plan in place to afford higher monthly payments.”
About 1,200 borrowers with an ARM participated in the survey taken between Dec. 14 and 20, 2022. Half of them said they opted for an ARM because the introductory rate was lower than those on fixed-rate mortgages. And slightly more than half said they did so because they plan to refinance or sell their home before the rate starts to adjust.
But it’s important to note that there are no guarantees that rates will be lower, or that borrowers will be able to find a buyer for their home, when that fixed rate period is over. Some 58% of the borrowers who spoke to U.S. News said they’d had “hesitations” about taking out an ARM for exactly that reason.
Still, ARMs can be a useful tool as long as borrowers fully understand their pros and cons, says Rocke Andrews, a Tucson-based mortgage broker with Lending Arizona.
Anyone who took out an ARM before the COVID-19 pandemic, for example, and did not take the opportunity to refinance while rates were at the lowest point in history, is right to have regrets, he says. But borrowers who used ARMs over the past year or so, when fixed rates surged to the highest in decades and home prices remained elevated, were simply being strategic.
And while no one has a crystal ball, it is a safe bet that interest rates will eventually fall. However, Realtor.com® is forecasting a 7.1% rate for the 30-year fixed by the end of 2023.
“One of my concerns is that there still is a big set of people who don’t plan on selling or refinancing before their reset period expires,” says Giovanetti. “ARMs take a lot more research and work, not just while you’re borrowing one, but throughout the course of the loan. … For the average homebuyer who doesn’t want to get involved with understanding the rules and the rate adjustment schedules of an ARM, maybe they should consider a [fixed-rate mortgage].”
ARMs are still far less popular than fixed-rate loans. Data from the Mortgage Bankers Association shows that last October, when the 30-year fixed-rate mortgage was at its highest since 2001, ARMs accounted for only 12.7% of all loan applications. In the last week of December, they made up 7.3% of the total.
Andrews notes that many borrowers are asking sellers and builders to buy down their mortgages rates rather than choosing an ARM. The most popular is the 2-1 buy-down, which offers a rate that is 2 percentage points below the current mortgage rate for the first year and then 1 percentage point below the rate in the second year. Then it resets to a permanent rate, which is what the rate was when the loan was taken out, for the remainder of the mortgage term. The seller typically pays for the buy-down.
That allows homeowners to take advantage of a monthly payment that’s more affordable now, with the certainty of knowing what the rate will be in the future. Of course, there’s always the option to refinance later if rates drop below what the borrower signed up for.
But the other important consideration, Andrews says, is that refinancing isn’t cheap. There might be periods when borrowers can get better deals on the closing costs, and it’s always crucial to shop around, starting with their current lender. He recommends they take into account their overall costs and not just how much they’re saving every month.
“ARMs aren’t a bad product,” says Andrews. “There’s just always that underlying worry.”
Median sales prices in San Francisco fell 1% year over year to $1.78 million in 2022, the first decline in over a decade, according to a report Monday from Compass.
The tech hub’s property market peaked in the second quarter of last year, capping a 10-year upcycle supercharged at its end by the pandemic boom, said Patrick Carlisle, chief market analyst at Compass San Francisco Bay Area.
At its height in the second quarter, the median sales price surpassed $2 million. But rising inflation and interest rates, combined with uncertainties in the financial markets, considerably cooled the market in the second half of the year.
In the fourth quarter, about 57% of homes sold for above their asking prices, compared to 81% in the same period of 2021. That number was 87% in the second quarter, when the market peaked, according to the report.
The market cooldown was especially evident in the luxury segment, defined as homes priced at least $3 million or condos above $2 million.
“When the pandemic boom first started off, it was affluent buyers purchasing expensive homes that led the market and initially supercharged demand,” Mr. Carlisle said. “Affluent buyers are now holding off more than buyers in the general market, a complete flip of the dynamics that began the pandemic boom.”
During the fourth quarter, there were only 77 single-family homes in San Francisco that sold for $3 million or higher, more than halving the 160 sales in the fourth quarter of 2021. During the second quarter, there were 166 luxury sales of houses, according to the report.
Luxury buyers tend to have much more wealth tied up in financial markets. “With all the volatility in those markets they have pulled back as they await more clarity in economic conditions,” Mr. Carlisle said. “Which is not to say that some very expensive homes aren’t selling—but the numbers of sales have plunged from last year.”