[caption id="attachment_230543" align="aligncenter" width="1200"] New housing developments in Delaware, like The Meadows at Bayberry near Middletown, are seeing rapid price increases, putting first-time homebuyers at a disadvantage.| DBT PHOTO BY JACOB OWENS[/caption]
Alison Stine is used to selling beautiful beach homes to families looking for their own slice of heaven in coastal Delaware.As the owner of a Bethany Beach-based brokerage under Northrop Realty and the current president of the Sussex County Board of Realtors, Stine’s team booked more than $100 million in sales in 2021 alone.But when she was reviewing her team listings last month, one of them stood out for another reason.The small, attached Wilmington-area home was 81 years old, but with recent renovations and listed for $225,000 – a price far below most of Stine’s sales. Yet it had 52 showings lined up with 72 hours of listing, or roughly more than four times what a median priced home would likely get, she said.“That is truly shocking,” she said. “My phone has not stopped ringing.”The reason why is a trend that could have concerning repercussions for the future growth of Delaware, its workforce and how our communities are developed.
[caption id="attachment_230545" align="aligncenter" width="1200"] DATA COURTESY OF BRIGHT MLS[/caption]
Rising pricesThe lack of housing for low-income households has been well-established for decades now, as those earning about half the median income have struggled to find homes and new affordable housing stock has been slow to develop.An influx of federal funding on the back of the COVID pandemic is helping make a dent in that problem by funding the construction or renovation of new subsidized units around the state.But the COVID era has also spawned a new issue in Delaware’s housing market: rising values may be pricing out first-time buyers or lower middle-class families.According to Bright MLS, the real estate listing service that serves Delaware, the median sale price for a home in New Castle County increased nearly 30% between February 2020 and February 2023, while Sussex County saw a jump of about 60%. Even rural Kent County was not immune, as it rose about 27%.For those who own property, those jumps are a great way to build equity and potentially cash out of a nest egg. But for those who don’t own property, the gap to homeownership is rapidly growing, said Lisa Sturtevant, chief economist for Bright MLS.“For some first-time buyers, it feels impossible because not only are they competing with cash buyers and investors, but their biggest competition are people who are selling a home and maybe upgrading, moving or retiring,” she said. “I'm afraid that it is going to be an increasingly challenging time for first-time homebuyers this year. I don't think it's going to get any easier.”
[caption id="attachment_230547" align="alignleft" width="300"] As home prices rise around Delaware, it will force more potential first-time buyers to rent instead, or even consider moving. | DBT PHOTO BY JACOB OWENS[/caption]
Market still hotWhile Delaware is not alone in this trend – median prices nationwide have risen more than 40% between 2020 and 2022 – the problem is growing more acutely here in part because it’s a desirable market for mid-Atlantic retirees. A 2023 study by United Van Lines ranked Delaware among the most popular end destinations in the U.S. while New Jersey ranked No. 1 for departures.Those arrivals are helping to drive market prices and restrict mid-market housing.On a single day – March 28 – there were only 48 homes for sale in New Castle County for under $300,000, according to Realtor.com. Of those homes, 33 already had pending sales.Meanwhile, there were 522 homes for sale for more than $300,000, including 317 that were priced at $500,000 or more – and the vast majority of the more than 200 pending sales were priced at the lowest end of the spectrum.Stine said that buyers would likely have to spend at least $500,000 for a home in eastern Sussex County right now, and finding any home in the county under $300,000 would be difficult.“That’s a very narrow and tight market segment,” she said.A February survey of sales by Bright MLS real estate agents found that two-thirds of sales received two or more offers on the home, and some sales were still seeing bidding wars of a dozen offers or more, Sturtevant said.“While the market may not be quite as hot … there are still more buyers than there are homes, and that's continuing to push prices up,” she added.Inflation, building costs don’t help
[caption id="attachment_230544" align="alignright" width="300"] Builders are also contending with rising inflated land, lumber and labor costs, which are being passed to buyers. | DBT PHOTO BY JACOB OWENS[/caption]
Another factor that is driving up the cost of homeownership is rising interest rates. A byproduct of the Federal Reserve’s fight against inflation is the impact on mortgage rates, which have risen from a historic low of about 2.6% in December 2020 to now just under 7%.Someone looking to buy a $400,000 home with a 30-year, fixed-rate mortgage at about 6.5% would now likely have to earn about $130,000 a year, in addition to a $20,000 down payment.Rising housing prices and interest rates have undoubtedly had an effect, as the National Association of Realtor’s 2022 survey found that first-time buyers represented a record low 26% of sales last year. The average first-time buyer was also 36 years old – also a record high.One of the other market pressures driving up median costs is the rising market rates on new construction homes, which frequently lie between $400,000 and $600,000 for some of Delaware’s most in-demand markets like Middletown and Lewes.Out of the more than three dozen communities under development by five of Delaware’s largest homebuilders – Ryan Homes, Benchmark Builders, Schell Brothers, K. Hovnanian Homes and Reybold – only four offer single-family homes for less than $325,000. Only one, Ryan’s Deerfield Meadows in Seaford, offered homes under $300,000.Homebuilders are contending with rising costs of building, including lumber prices that are still higher than pre-pandemic norms of around $300 per thousand board feet, and local opposition to higher density building.Growing disparityThe lack of affordable starter housing is pushing more young people toward renting for longer periods of time, which often leaves them rent burdened.Someone who pays 30% of their take-home pay on rent is considered rent burdened, and 50% severely rent burdened, Stine said. With many apartments in Delaware now listing between $1,500 and $2,500 a month, it can easily leave those lower on the wage scale rent burdened.It also leaves them far behind in growing their personal wealth, as homeownership is the primary avenue to do so in America, Sturtevant said.“You could say, ‘Oh well, that's a bummer. They can't buy a house. They can rent for a while.’ But it's bigger than that because it has to do with how wealth is distributed in America and it is going to be distributed more unequally as a result of the bigger challenges on homeownership,” Sturtevant said.Prohibitive housing costs could also exacerbate the workforce shortage in the state, however, where thousands of open jobs remain to be filled. Younger and lower-income earners may choose to move to other areas where single-family costs are lower, such as the South or Midwest, or they may rethink what their starter home looks like, Sturtevant said.“In the ‘70s and ‘80s, folks were buying a single-family home on a quarter-acre lot right out of college. But now first-time homeownership might look like a condominium, duplex or townhouse,” she said. “The question is whether they will make that shift.”Sussex seeks solutionsRecognizing that the cost of living was pricing out many workers in Sussex County, elected leaders began devising support for affordable housing.It launched Housing Trust Fund, which provides forgivable loans worth up to $30,000 to buyers who stay in a home for at least 10 years and a $50,000 per unit grant of affordable housing built by a developer, capped at $500,000 per project.The homebuyer assistance program, which offset the down payment and settlement costs for those making 120% of the median area income or less, proved the need.“That was in very high demand. We ended up having to stop accepting referrals within four months because we had already obligated all our funding,” said Brandy Nauman, director of the Sussex County Community Development and Housing Department.The program assisted 35 households in the inaugural pilot year, and the Sussex County Council approved a new allocation of funding on March 28.Officials also revamped the Sussex County Rental Program, which allows developers to increase building density in certain areas if they promise to offer at least 25% of units at affordable rates. That program has drawn interest from multifamily developers, although the county has yet to see its first applicant, Nauman said.“We want to introduce and diversify the county's housing stock because we do have such a significant supply of single-family housing,” she said.Sussex isn’t alone in the worries about the housing impact on the workforce though.When asked last month about tactics to incentivize homeownership, Gov. John Carney said that housing was an issue that he has been talking often about with Delaware State Housing Authority Director Eugene Young, adding that he’s concerned about the impact on young residents.One of the ideas they are considering is incentives directed at needed workers, such as teachers, nurses, firefighters and police officers, especially as they try to attract new residents near the new Bancroft School on Wilmington’s East Side.“It's obviously the jobs [attracting young people], but it's also the way of life around those jobs and where they live,” Carney said.