If you take a quick look on the real estate app Zillow and see the values of homes in your neighborhood and notice they have significantly gone up, you’re not alone. Home values in my neighborhood have increased by over $15,000 just in the past 20 days. It’s even worse in other states and cities like New York or Washington D.C., where a whopping $789,000 will only get you a charming but small 1,000 square foot condo in a converted D.C. brownstone. 

The housing market seems so unrecognizable today. Gone are the days where a young family could afford a decent sized four bedroom house for $190,000 with a two car garage and granite countertops. Today, homes with this description are worth at least $350,000 in the supposedly “cheaper” suburbs and far more in cities and desirable areas.

So, with home values seemingly going up drastically, the question raised by many younger millennials and Zoomers is “how will I be able to afford a home?”

Home Loans Are No Easy Feat

It’s a good question. Getting a home loan is no easy feat. First, you have to have not only good, but established credit. A conventional home loan, also known as a mortgage from a bank requires buyers to have at least a 620 credit score, says Quicken Loans. For an FHA loan, which is a loan that is insured by the federal government, buyers must have at least a 580 credit score. 

Factors that determine your credit are things like how much debt you owe, how long you’ve had that debt, and how good your payment history is. You also have to put a down payment on a house. A 10% down payment on a $350,000 house is $35,000, which is money most people don’t have. In cities, where modest single family homes can reach well over half a million dollars, even more has to be put down.

Paycheck to Paycheck

According to CNBC, 63% of Americans live paycheck to paycheck, as the ongoing COVID-19 pandemic continues to leave many jobless or with reduced income. Although the economy is getting somewhat better, with vaccines now being distributed throughout the country, America has seen more of a K-shaped recovery, where the upper middle class and high income earners are doing better, while lower middle class and poorer Americans continue to struggle.

This struggle is reflected in real estate trends as well. According to Pew Research, U.S. households are renting more than ever, as inflation continues to have the most negative impact on the poorest Americans. Small things like gas or grocery prices can severely impact someone’s budget if their wages don’t increase with the prices of these goods over time. 

Decisions With Serious Impacts

For Zoomers who are graduating high school or in college, buying a home is probably the last thought in their mind. But still, the decisions we make even at this young age can have serious impacts on our prospects of being able to afford a home in the next 10 to 15 years.

Decisions like going to college have a significant impact on your chances of being able to afford a home, as college educated adults are 9% less likely to rent their homes, compared to non-college educated adults. Factors about us we don’t choose like race and ethnicity also have an impact on our chances of owning a home. Black and Hispanic households are twice as likely to rent, versus white households.

The Market Could Correct Itself

It isn’t all negative though. A survey conducted by Zillow that involved 100 economists revealed that Gen Z will be able to more easily afford homes in the next 15 years than their millennial counterparts. The study cites that the ongoing housing inventory crisis, that has made homes so expensive today, will solve itself in the next 15 years.

But this still doesn’t answer the question of how we will be able to afford homes. More housing is great, but if it’s all luxury townhomes or single families that cost over half a million dollars, the issue is still not solved. 

Enter, a daunting, and potentially realistic future. A story from the Wall Street Journal detailed how a brand new subdivision with 124 homes in Texas was entirely bought up to be converted into a rental neighborhood by an online property-investing platform. 

Heavier and Tighter Borrowing

This trend of wealthy real estate conglomerates buying up houses en masse to put on the market for rent is not new, and is partially the reason for why housing prices have so drastically increased. After the housing market collapsed in 2008, millions of Americans were left broke and ultimately had to foreclose on their homes.

For rich banks and investment firms, this was a perfect opportunity to buy these homes for insanely cheap prices and rent them out to families who couldn’t qualify for home loans, due to the heavier and tighter borrowing restrictions that were now in place. 

These real estate investment companies are often competitors for home buyers as well. This makes it more difficult even for qualified buyers to be able to afford a home. When you’re competing with a firm that can pay top dollar all in-cash, it makes it much harder for your offer to have any value to sellers. 

Could The Middle Class Be Squeezed Out?

If this kind of market continues, where housing inventory is extremely low, while costs continue to increase, American neighborhoods will be owned either by wealthy homeowners who will continue to acquire more wealth in equity, as their values continue to rise or by corporate landlords who will do little to maintain properties, as they know tenants can’t afford rising home prices. 

Even worse, if there is a housing bubble burst, similar to the one in 2008, banks will be even more hesitant to loan out to buyers, forcing millions of more Americans to rent, while wealthy banks and investment firms will be able to once again buy up cheap real estate to rent out. It’s a cyclical cycle that is the worst case scenario for all of us. 

The Power of Congress

This doesn’t have to be the case though. Potential policy could put into place that might make it easier for Americans to afford a home could go a long way. This includes student loan forgiveness, money towards funding infrastructure, or direct programs that can help young and poor Americans buy their first home will go a long way ensuring that Americans own homes and continue to grow their wealth.

On a national scale, this could be accomplished by addressing these issues to the House of Representatives Appropriations Committee, which could provide more funding to the Department of Housing and Urban Development. The federal government can also intervene by ensuring that housing remains affordable throughout the country, by limiting the amount of homes landlords and banks can have. In states and local communities, tax incentives and regulations that prevent investments funds, looking to buy homes en masse to convert to rental properties can be created to allow quality and affordable housing in local neighborhoods and communities. 

Tips For The Future

But as seen time and time again, with the latest example being another COVID relief taking almost one year to pass (from the 2020 CARES Act), the government is extremely slow to accomplish policies that actually benefit the people. So in the meantime, here are some tips that might help you be able to afford a home in the future: 

• Avoid those credit card salespeople in the student center: Avoiding unnecessary debt is extremely important. Now that I am 18, I have received a ton of credit card offers in the mail, encouraging me to establish a line of credit with their banks. Although nothing is inherently wrong with having a credit card, as it is one of the foundations of establishing credit, you must be responsible. Paying your bill on time and avoiding interest accumulation is paramount. Creditors love giving young people credit cards, so they can get into debt and collect interest, so if you do dance with the devil, make sure you can keep up with the moves. 

• Student loan avoidance: Student loans are another necessary evil for a lot of us. School is expensive and it makes no sense that colleges expect us to have $30,000 a year to dish out on an education. Ideally, applying for as many scholarships as possible is the best solution. But even then, loans still might be necessary. So borrow what you can afford and pay off easily. Avoid high interest rates, which accumulate monthly. Unsubsidized loans, loans that don’t collect interest until you are finished with college are the best type of loans to borrow. Paying them off as soon as possible will position you not only to be able to buy a house easier, but also have more financial freedom.

• Saving and investment: Although it totally sounds like something your parents would tell you, saving is important. You’re young, so you might want to take a high risk if there’s a high reward, and as long as you feel comfortable (and it’s legal), go for it. But for the rest of us, who are young but still risk averse, saving accounts are a great way to store your money away. The more you put in, the higher your returns will be in the future.