Nebraska's Housing Market
November 16, 2023
Rising home values continue to create problems for people living in our state. While Nebraska's statewide valuation rate increase of 12.9 percent for the last 12 months is significantly less than the national average of 20.7 percent, the current situation is still not good for people living in Nebraska. So, today I would like to highlight some of the problems affecting those looking to purchase a home in Nebraska.
Homeowners have been defaulting on their mortgage loans at an alarming rate in Nebraska. Bank and real estate data from 2022 show that foreclosures went up 132 percent in 2022 compared to 2021. This year distressed homes have increased 178.1 percent from the previous year. The primary reasons for this are rising home values coupled with low income. According to a new report by CBS News most Nebraskans now need an annual income of $83,185 in order to afford a home. Consequently, more and more Nebraskans are finding it difficult to pay their monthly mortgage payments.
Premiums for home insurance policies have gone up sharply. According to Policygenius, the national average of home insurance increased 21 percent from May 2022 to May 2023. As a result, some homeowners are choosing to raise their deductible in order to get a more favorable rate. This puts banks in a bind and makes mortgage lending riskier and more difficult to obtain for homebuyers.
Young families that are just starting out are now finding out how difficult it is to become first-time homebuyers. One reason is that interest rates have skyrocketed. Mortgage interest rates reached their lowest level in January 2021. Back then a 30-year mortgage interest rate could be locked-in at 2.65 percent. Today that rate is 7.37 percent. What this means is that someone buying a $200,000 home with a good job and a FICO score of 740 or more plus a 25 percent down payment could secure a rate of 7.37 percent. Most first-time homebuyers will get stuck with a higher rate. But, even at a rate of 7.37 percent, a family purchasing a $200,000 home would find themselves paying $1,381 per month in mortgage payments and that is more than what many families can afford to pay in Nebraska.
Nebraskans increasingly find themselves stuck in their own homes. Nebraska continues to have low home values compared to the rest of the United States. The median home value in Nebraska is currently $237,840, but in Western Nebraska homes are much cheaper. The median listing price for homes in Scottsbluff is currently 190,000. When you consider that the national home sales average is $431,000, it means that those wishing to make a lateral move to another state where taxes are lower means that they will find themselves having to settle for a significantly smaller sized home, and who wants to do that?
Nebraska's cost of living index also affects home sales in our state. Nebraska's cost of living index is the seventh lowest in the nation, which is currently set at 90.10. However, three of Nebraska's border states have even lower cost of living index rates. Iowa's is 89.70, Missouri's is 88.40, and Kansas's is 87.70. Colorado is the only border state with a significantly higher cost of living rate at 105.50. So, anyone looking to move to the Midwest would be wise to consider moving to Iowa, Kansas or Missouri before Nebraska.
Rising home values usually means higher property taxes. Even when local units of government lower their tax levies, property taxes often still go up. Here's why. Unless the tax levy becomes less than the increase in your property valuation, a homeowner will get a property tax increase rather than a property tax decrease. Rising property taxes are making it more difficult for families to stay in their homes.
The current state of Nebraska's housing market means that government officials have a lot of work to do in order to improve housing conditions in our state. The best thing that lawmakers can do is pass the EPIC Option Consumption Tax. The EPIC Option Consumption Tax would eliminate property taxes altogether, allow homeowners to actually own their own homes instead of renting them from the government, and it would make Nebraska the most attractive state in America to move to and live in.