Report: secondary cities offer chance to move from rent to own
By Terrance Thornton | Digital Free Press
The pursuit of homeownership remains a key silhouette of the American Dream envisioned by millions who call the United States of America home — but for many the cost of a mortgage in primary municipalities is a financial stepping stone too high to scale.
The Valley of the Sun is no exception to these burgeoning macroeconomic principles of the 2020s— but a recent study conducted by Point2 and authored by Alexandra Ciuntu shows opportunities in what real estate aficionados call ‘a secondary city.”
An American secondary city is one that is not a metropolitan center but has a population between 250,000 and 1 million. Real estate professionals report those cities typically serve as regional hubs for commerce, industry, and education.
In her report, Ms. Ciuntu, points out these economic indicators of secondary cities here in Maricopa County:
- Of the country’s 100 largest secondary markets, six are in Arizona.
- Renters here lack 28% to 42% of the income required to cover the mortgage on a starter home.
- First-time buyers face median prices on entry-level homes ranging from less than $308,000 in Glendale to more than $450,000 in Scottsdale.
- Despite posting the smallest median price among the Arizona secondary markets analyzed, the road to homeownership is the toughest in Glendale: Renters earn 42% (or $30,812) less than they would need to go from rent to own.
- The average Gilbert renter makes $69,194, which is $34,218 less than the minimum amount required to afford an entry-level home: $103,412. This is the highest net difference out of the Arizona cities included in our analysis.
- Would-be buyers in Peoria and Tempe lack 39% and 35%, respectively, of the amount required to afford a starter home.
- First-time buyers in Surprise, however, come pretty close to affording an entry-level home — at least compared to other large secondary markets in Arizona.
- Renters in Maricopa County are 28% short of transitioning to homeownership.
Report: Arizona secondary cities opportunities exist all around Phoenix proper
The Arizona Digital Free Press reached out to Ms. Ciuntu to better understand these economic factors, hear directly from the author of this report and to give readers a better view of secondary cities here in Arizona. This is what she had to say:
What are some of the factors that have contributed to the rise in popularity of starter homes in secondary cities?
While we can’t affirm a rise in popularity of starter homes in secondary cities, it’s easy to understand why they are sought after: Low price is what makes entry-level homes attractive in the first place.
With main hubs no longer an option, today’s would-be buyers tend to extend their search outside the limits of their core cities. Secondary cities, particularly those orbiting core cities within a metro, used to be considered an oasis of affordability for first-time homebuyers.
But as the share of starter homes shrinks across markets and interest rates oscillate, renters face limited possibilities in their transition to homeownership.
What are the benefits of buying a starter home in a secondary city?
By definition, the main advantage of buying a starter home is of a financial nature. Lower cost of living and increased job opportunities used to be the main charms of secondary markets – and in some, the appeal still stands. So, for many first-time buyers looking to get away from incessantly booming main cities and increasingly booming prices, buying an entry-level home in a secondary city feels like the way to go.
What are some of the challenges that buyers may face when purchasing a starter home in a secondary city?
The main challenge is actually finding a starter home for sale. The entry-level housing inventory has become increasingly limited, which has led to intense competition for an already in-demand property type.
Another hurdle is finding a starter home that still fits the criteria: A reasonably priced home fit for a first-time buyer. Although prices in secondary markets are thought to be lower compared to core ones, affordability too has changed its definition here. To put things in perspective, renters in 41 of the 100 largest secondary cities in the U.S. earn half or less than half the income they would need to cover a monthly mortgage on a starter home.
What are some tips for buyers who are considering purchasing a starter home in a secondary city?
Buying a home is a significant decision, so it’s essential to take time and reflect on each aspect of the process.
First of all, renters looking to transition to homeownership should decide on a budget in order to restrict the property pool and focus on available options that fit them. Costs like insurance or property tax payments should also be considered when setting a budget.
Not all entry-level homes boast lower prices, so simply targeting this type of property in one’s searches may not yield only affordable results. This is why local market research and working with a local real estate agent can be helpful – particularly if the would-be buyers don’t know much about the area or the process itself.
What are your thoughts on the future of the real estate market in secondary cities?
When talking about the future of the real estate market in secondary cities, the challenges seem to mirror those of the nationwide market: Shrinking inventory, rising prices, fluctuating interest rates. As secondary markets too squeezed out entry-level homes, it hints that their vanishing is pivotal to the housing crisis overall — and remains so as prices show no concise sign of dropping significantly.