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Buying Land May Be The Only Way to Afford a Home in the Next Decade

A home with yard, two kids and a white picket fence have always been a part of the American dream. But for today’s younger generations, this dream may stay just that – a dream. With skyrocketing home prices, stagnant wages and increasing student debt, finding the funds to buy a home is an uphill battle for many people. With land prices still at affordable rates, buying land and building a home may be the only way to afford a home in the next decade.

Skyrocketing Home Prices

It’s no big secret that the housing market has been in a slump since 2008, although it’s slowly recovering. But despite this fact, home prices are still at an all-time high. Just four decades ago (1970) the average home price was $17,000 according to the US Census. And since then, prices have continued to skyrocket. In 1980 – just ten years later – the average price was $47,200. In 1990, it was $79,100. In 2000, $119,600. And in 2014, we’re looking at an average home price of $188,900. In just the last 14 years, the average home price has increased $69,300. Increasing home prices wouldn’t be an issue for younger generations if wages were increasing at the same rate.

Stagnant Wages

The average wage in the United States hasn’t changed much over the last decade. As home prices continue to increase and wages remain stagnant, Americans will find it more difficult to purchase a home. In 2000, the average American household earned $42,148 per year. In 2014, the average household income was just $53,891. Americans are earning $11,743 more than they were 14 years ago, but the average home price has increased $69,300. And to make matters worse, student debt is at an all-time high.

Increasing Student Debt

America now has over $1 trillion in student loan debt. The average student has more than $20,000 worth of student debt. And for those with more, monthly payments are equivalent, or more than, a mortgage. For many graduates, monthly student loan payments are the primary obstacle preventing them from buying a home. And with tuition rates on the rise, student debt will only increase in the future. According to NCES, the average cost of tuition is $33,047 per year at private institutions and $14,292 per year at public institutions. In 1981, those rates were $14,909 and $6,439 respectively. With the majority of employers requiring college degrees, younger generations are forced to take on student debt (or pay tuition out of pocket) to earn a decent living. With all of these factors working against the younger generation, buying a home may seem like an unreachable dream. But buying land may be the light at the end of the tunnel.

Buying Land is Still an Affordable Option

America has 3,717,813 square miles of land. And a fair amount of that land is still undeveloped. In many states, you can find several acres for dirt cheap. Even in more prominent areas, land is still an affordable option. But isn’t building a new home on a piece of land more expensive than buying a pre-existing home? Not necessarily. Modular homes are affordable and less expensive than constructing a new home. Mobile homes and “tiny” homes are also an option. Even constructing a brand new modest-sized home can be cheaper than buying a pre-existing home in many areas. Costs can be reduced if buildable land plots are purchased. These are plots of land that are ready to be built on. And because you control how large (or small) the home is, you can save even more by choosing to build a smaller home. At $125 per square foot, the cost to build a brand new 1,200 square foot home would be about $150,000. That’s $38,000 less than the average home price in America. Buying land and building a new home will give future homeowners more control over their living situation. And if the downsizing trend continues, many will find that building a smaller home will be far more affordable than buying a larger pre-owned home. For future generations, buying a home may mean scouting out land and finding reliable contractors to build a home. With home prices on the rise, wages staying stagnant and student debt increasing, future homeowners may have no other affordable option.