Trust This.: First-time buyer hurdles — Insurance dampens investments — Quick industry roundup

Florida Land Trusts

1 big thing: Starter Homes Increasingly Out of Reach for First-Time Buyers

Thanks to rising prices and mortgage rates, homebuyers now need to earn $75,849 annually to purchase a typical U.S. starter home, according to a recent Redfin report.

Why it matters: Rising prices and mortgage rates mean lower-earning buyers are being pushed out of the market entirely.

Why it’s happening: Rising costs and nearly flat wage growth were never a good combination; throw in a pandemic and the situation starts looking especially bad.

  • Costs: Year over year, the typical starter home’s price rose 3.4 percent, reaching $240,000 in February. During that same period, the average 30-year-fixed mortgage rate rose from 6.26 percent to 6.78 percent.

  • Incomes: Although U.S. household incomes rose about 5.5 percent year over year to $84,072, buyers can still technically afford the average $75,849 needed to purchase; but they have less money left over than before.

  • Pandemic: Starter homes are about half as affordable as pre-pandemic when homebuyers needed to earn $40,465 annually for the average starter home price of $169,000, and the average mortgage rate was about 3.5 percent. The median income was 63 percent higher than the income required to buy a starter home.

It’s not just starter homes: A separate Redfin report found that any homebuyer must earn $114,000 annually—about $30,000 more than the median U.S. household income—to afford the typical U.S. home.

Additional challenges for first-time buyers: Competition for the limited supply of affordable homes is fierce, especially when other buyers are putting in all-cash offers.

  • Many of those offers come from investors looking for rental properties or from established homeowners using equity from another property.

It’s not all bad news: Yes, the income required to purchase a starter home is up from last year, but it’s down from last October’s record-setting high of $82,373. The 8 percent drop is attributed to a mortgage rate decrease from 7.8 percent to 6.8 percent.

The bottom line: While first-time homebuyers face increasing challenges in securing a starter home, there may be some hope on the horizon, particularly with gradually declining mortgage rates.

2. Insurance Availability + Rising Insurance Costs = Missed Opportunities

Florida Land Trusts

Real estate investors are having a harder time securing homeowners’ insurance, and when they do find it, the high prices dampen their enthusiasm for buying and selling, according to RCN Capital’s Spring 2024 Investor Sentiment Survey.

Why it matters: Investors are missing out on opportunities as a result of these coverage issues.

What the numbers say: Over two-thirds (68%) of survey respondents were deterred by coverage issues, and more than half (57%) said they’d walked away from investment opportunities.

Hardest hit: Florida and California are seeing significant increases for homeowners insurance.

  • The higher rates are mostly thanks to extreme weather events, which send some insurers running for cover. Some are even dropping coverage in those areas.

Fix-and-flip investors are especially feeling the heat.

  • In Florida, over 90% of investors said they missed out on investments, while 83% in California reported the same.

Still, some optimism: The survey reported that investor sentiment wasn’t as dire as insurance challenges might suggest. Although only 37% of investors thought current conditions were better than last year (compared to last year’s 40%), there are some promising survey results:

  • Just 27% of respondents thought this year’s conditions were worse than last year—a record low for the survey.

  • 42% expected improvement over the next six months (compared to last year’s 39%).

  • 43% of fix-and-flip investors were more positive than rental property investors (32%) on both present and future conditions.

Rising home prices and mortgage rates continue to affect investors’ behavior as well, and 59% expect to see prices increase even more.

Buyer demands: Overall, a whopping nearly 90% of investors have seen either a decline in demand for owner-occupied homes, an increased demand for rental properties, or both.

Where the sales are: The most common investment locations were California, Florida, Texas, and New York.

  • Overall, more investors focused on rental properties over fix-and-flip homes.

The bottom line: The survey results in Florida and California are particularly concerning since they suggest that other markets could soon experience similar insurance coverage issues, leading to further missed investment opportunities.

Mark Warda Florida Land Trusts

Mark Warda & Jack Shea’s Last Seminar
Mark Warda and Jack Shea gave their last Land Trusts & More Seminar in Tampa on October 23, 2021.

  • It is now available in both online streaming and DVDs.

  • In this seminar, they discussed land trusts, anonymous LLCs, 1031 exchanges, self-directed IRAs, asset protection, and many other strategies they learned in their 40+ years in the field.

Go deeper: Visit Galt Press for more information.

3. Catch up fast

Florida Land Trusts
  1. Luxury home sales jump. MPAMag

  2. Mortgage rates rise to highest in five months, driving new mortgage applications down, and inventory rose. Bloomberg (gift link)

  3. A top mortgage originator’s thoughts on Mobile and Manufactured Homes’ future for homeownership. MPAMag

  4. As of July 1, employees making less than $43,888 a year must be paid overtime pay for over 40 hours a week. As of January 1, 2025, the threshold rises to $58,656.00. Salaried employees below the threshold must track their hours worked each week to ensure they receive the correct pay rates. This is estimated to raise the pay of 4 million workers. Workers are automatically exempt from overtime pay if they earn more than $107,432 a year, and that will rise to $151,000 a year under the new rule. US Dept of Labor and Reuters

  5. The Federal Trade Commission made an administrative rule that non-compete clauses are an unfair trade practice and, therefore, banned in most cases except for policy-making executives making over $151,164 a year. This is expected to enable millions of employees and contractors subject to such clauses to leave employers for higher-paying jobs or to start new companies. Non-solicitation of employees and customers, and trade secrets protections are still enforceable. Multiple lawsuits challenging the new rule have already been filed. Bloomberg (gift link)

4. Closing Thought

Joe Seagle
The Old Well stands empty, waiting for new grads to take their final drink next month. Photo: Joe Seagle

This week, I had the pleasure of returning to my alma mater in Chapel Hill to see one of my college best friends receive the highest award for North Carolina historians.

Why it matters: Despite what Thomas Wolfe may have said, you can go home again.

Sitting in the Pit as the students rushed by hurriedly between classes, it was as if nothing had changed in 30 years.

  • As different and unique as we always think our experiences are, we’re more alike than different — even from generation to generation.

  • As Mark Twain said, “History doesn’t repeat itself, but it often rhymes.”

  • And I smiled as I played “What do you do with a BA in English?” in my head (hint: you go to law school).

All around me was another generation aspring to a better life through education to be the next generation of productive world citizens.

Stepping back on those familiar brick paths, smelling the freshly mown grass quads, and mentally identifying the species of every tree I walked under (a habit I picked up in 7th grade) took me back 30 years to a time when I aspired to a better life.

  • My great-great-grandfather immigrated to the U.S. from Ireland at age 7 to be an indentured servant on a farm.

  • When he was old enough, he left his servitude and got his own farm, raising his family there.

  • His family likewise farmed through the Great Depression and moved into town.

  • The next generation worked in textile mills, tying the same knots all day for hours for over 40 years, fixing the machinery in the mills, cutting and styling hair, lumberjacking, and running payroll in furniture factories.

  • Their children finished high school, and some attended college or served in the military.

  • Their children (my generation) graduated from college and got advanced degrees.

  • And the next generation is smarter and more innovative than we could have ever hoped to be.

The bottom line: This week’s trip to Chapel Hill and walking down memory lane reminded me of why our company’s mission is to help everyone we touch aspire to a better life… as past generations have done for us.

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