P
ay Dirt

    We Thought Moving to a Cheaper City Would Be Our Ticket to an Better Life. Big Mistake.

    Photo illustration by Slate. Photo by Viorel Kurnosov/iStock/Getty Images Plus.

    Dear Pay Dirt,

    My family and I moved from an extremely expensive metro area to a slightly less expensive one about a year ago, hoping for a better life. But now that we're buying a house in our new location, I'm panicking. The market is still crazy – modest homes sell for $100,000 over asking price, and properties go into contract within days of listing. Our budget feels inadequate, and I'm worried about buying too little house for too much money.

    Rental options are limited, interest rates are rising, and waiting doesn't seem like a good option either. My husband and I are financially stable – we should be able to get a decent house! Is there any way to navigate this sanely? What are the biggest red flags/pitfalls we should try to avoid?

    —This Is Madness

    Dear This is Madness,

    The housing market has been chaotic since 2020, with historically low interest rates and an extreme housing shortage driving prices up. Even as interest rates rose, prices climbed higher due to the shortage. Today, housing affordability is at an all-time low, according to the Atlanta Federal Reserve Bank.

    There are no guarantees that a home will hold its value or appreciate further. However, it's likely that interest rates will decline faster than new homes can be built, causing prices to continue rising. If you want to own your own home, find something affordable for where you are in life right now. You may have to spend more than you thought, but as long as you can see yourself living there for the next five to 10 years and make payments without financial risk, take the leap.

    One key piece of advice: if you have a choice between buying a renovated home or a fixer-upper that needs work, take the fixer-upper. Over time, you can renovate to build your dream home while also building value.

    —Ilyce