Market Update November 27th, 2023

The housing market is witnessing a creative and practical trend, particularly among Gen Z and millennials, who are finding innovative ways to navigate through the challenges of high property prices and rising interest rates. This trend, known as "house hacking," involves renting out a part of one’s home or an entire property to create an additional income stream. According to a recent Zillow report, a significant 39% of recent homebuyers see this as an essential opportunity, reflecting an increase in interest over the past two years. This strategy is especially popular among younger generations, with over half of millennial and Gen Z buyers showing enthusiasm for house hacking, as per Zillow’s survey.

In the current economic climate, where homeownership is becoming increasingly challenging, house hacking offers a ray of hope. Manny Garcia from Zillow explains how this strategy can transform the dream of owning a home into a reality, even amidst tight market conditions. The need for such solutions is evident in the rising figures: the median sale price for homes in the U.S. stood at $413,874 in October, up by 3.5% from the previous year, Redfin reports. Furthermore, mortgage rates have peaked at 8%, the highest in over two decades, as noted by Bankrate. This makes the idea of renting out portions of a property a practical solution for offsetting the costs associated with buying a home.

The affordability of homes remains a pressing issue, especially for first-time buyers. A report by Redfin suggests that an annual income of $114,627 is required to afford a median-priced home in the U.S. This highlights the importance of alternative solutions like house hacking, as pointed out by Redfin’s chief economist Daryl Fairweather. With a limited availability of smaller, more affordable homes, having the option to rent out a room or a part of the house is increasingly valuable, offering a smart way to manage expenses and mortgage payments.

However, it’s important to keep in mind a few key considerations before embarking on the house hacking journey. While it can be a lucrative venture, it’s essential for potential buyers to have a solid financial foundation. Banks often require proof that buyers can handle mortgage payments without depending on potential rental income. Additionally, the rental market landscape is evolving, with an influx of apartment availability possibly affecting rental prices. This, coupled with specific local regulations and homeowners association rules, makes it crucial for potential house hackers to do their homework, ensuring they are well-prepared to make the most out of this opportunity.

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Have a great week everyone!