Hurdles to Homeownership: Why buying a home is out of reach for many South Dakota residents
“I would say the American Dream of homeownership is wounded in South Dakota right now,” said Ron Sasso, a Black Hills real estate agent.
A series of economic factors has coalesced over the past two years to make it extremely difficult or even impossible for many people in South Dakota to achieve the American Dream of homeownership.
The price of new and existing homes has skyrocketed in recent years at a time when modest wage gains for South Dakotans have been largely offset by high inflation. That economic imbalance has been exacerbated by dwindling availability of affordable homes, especially for first-time homebuyers.
Meanwhile, a surge of relocations to South Dakota during the COVID-19 pandemic has further inflated home prices, pushing many in-state residents out of the market, especially in the urban centers of Sioux Falls and Rapid City.
On a most basic level, the path to homeownership in South Dakota has been made far more difficult because the increase in incomes has not nearly kept up with the cost of a home, a disparity that grew during the pandemic.
According to the South Dakota Realtors Association, the statewide median home sales price rose by 54% from 2018 to 2022. Meanwhile, median household incomes in South Dakota rose by only 17% during that time, even with a healthy 10.4% household income jump from 2020 to 2021, according to the U.S. Census.
“I would say the American Dream of homeownership is wounded in South Dakota right now,” said Ron Sasso, a Black Hills real estate agent and former member of the Rapid City Council. “It’s not dead, but it’s tough out there for homebuyers, especially when you start looking at the middle to lower incomes.”
Home sales have slowed in recent months, but prices have continued to rise in South Dakota.
The median home sales price in the Sioux Falls metro area, which includes Lincoln and Minnehaha counties, was $265,000 in 2021 and has risen by 17% over the past year to $310,000 in 2022, according to the Realtors Association of the Sioux Empire.
The median home sales price in the Rapid City area was $317,000 in the third quarter of 2022, up 15% over the $275,000 median sale price in third quarter of 2021, according to the Black Hills Association of Realtors. In 2019, before the COVID pandemic, the median sales price in Rapid City was $207,000, according to City-data.
The inability to obtain homeownership has fueled concerns that more South Dakotans will be trapped in rental properties, be unable to pursue the goal of raising their families in a home they own, or that they must sacrifice living standards in order to afford a home purchase. Furthermore, if first-time homebuyers are shut out of the market, it could prevent them from getting ahead financially and break the long-held cycle in which families start small and then increase the size and value of home purchases as they go through life.
In mid-December 2022, there were 2,130 single-family homes for sale in South Dakota, according to Realtor.com. Of those, only 103 (4.8%) were priced at $100,000 or below, and only 399 (18.7%) were listed at $200,000 or less.
While home prices are typically much lower in rural areas of the state, the housing stock in small towns tends to be older and in need of repair, and available properties for sale are scarce.
The COVID-19 pandemic rental rates to rise quickly and median home prices jumped as the cost of building, maintaining and owning a home rose.
However, South Dakota experienced a unique and unexpected interruption to its real estate market over the past two years.
In national messaging pushed by Gov. Kristi Noem, South Dakota declared itself free from COVID-related mask mandates or shutdowns. Noem in particular pushed the idea that South Dakota was open for business as she openly encouraged people to move here.
Most South Dakota real estate agents will confirm that the campaign worked, luring numerous new residents — many of them homebuyers — into the South Dakota market. Most arrived from states with much higher incomes than in South Dakota. The new residents may mean higher sales and property tax revenues in the long haul.
But their arrival led to a run on homes in South Dakota and a frenzied housing market, in which prices rose sharply as out-of-state buyers made offers that were sometimes tens of thousands of dollars above asking price.
As a result, many South Dakota homebuyers couldn’t compete, and while home prices have stabilized somewhat as the market has cooled in recent months, it appears unlikely prices will return to pre-pandemic levels.
“We imported, under the guise of freedom, a lot of new South Dakotans who came here in the last two and a half years, and what they brought with them was their housing inflation,” said Steve Ennis, a senior mortgage officer at CU Mortgage Direct in Sioux Falls. “They came here and found their purchasing power to be quite favorable.”
Recent wage gains in South Dakota, meanwhile, have been mostly consumed by inflation, which hit a recent peak of 9.1% in June 2022, the highest rate in 40 years, and was just over 7% in November 2022. Furthermore, the state economy is not well positioned to see major increases in wage growth, with 36% of South Dakotans employed in relatively low-paying industries such as service and retail, sales and office positions.
“It’s not like there’s not jobs, because there are, but they’re not paying people what they need to get paid in order to live, let alone buy a house,” said Shaylynn Hurd, 35, a prospective homebuyer from Rapid City.
The growing disparity between wages and home prices has led to what Ennis calls an “affordability cliff,” in which the buying power of South Dakotans has been significantly reduced. For example, Ennis said, a homebuyer who could afford a $270,000 home in 2021 could only afford a $190,000 home now, assuming the payment they could afford remains the same.
Coupled with a spike in mortgage interest rates — from the 4% annual percentage range before the pandemic to above 6% now — the rising home prices have reduced the number of people who can buy a home in South Dakota, and reduced options in regard to home size, location and quality, Ennis said.
“Too few people can qualify for a mortgage, and even if they can, too few people are choosing to take on that amount of payment shock to their normal budget,” he said.
Brandon Martens, a Sioux Falls real estate agent who is president of the South Dakota Association of Realtors, remains bullish on homeownership prospects.
South Dakota continues to provide a high quality of life and owning a home is still a part of that, Martens said. Even with higher home prices and interest rates, buyers can work with agents and lenders to craft a plan that allows them to buy a home, even if that property satisfies more needs than wants, Martens said.
“I think homeownership and that American Dream in South Dakota is alive and well,” Martens said. “I think people can still afford to get into a home, but it comes down to people having to adjust to what the interest rate and price is going to be. Whether it is bedroom or bathroom count, size, location, garage stalls, and condition, all that comes into play.”
For homebuilders, constructing homes in the $300,000 range has become incredibly difficult, said Tom Jarding, president of the Home Builders Association of the Sioux Empire.
For years, and especially during the pandemic, the costs of land and building supplies skyrocketed, making it harder than ever for builders to construct relatively affordable new homes and still make a profit, Jarding said.
“The battle has been over what one would consider an entry-level home cost in the last two and a half years because there’s been a great escalation that has taken place,” Jarding said.
Many of the affordability issues affecting homebuyers across South Dakota have been faced by Native Americans for years, long before the market upheaval caused by the pandemic, said Tawny Brunsch, director of the Lakota Funds lending program on the Pine Ridge Indian Reservation.
With a greater percentage of Native people living at or below the poverty level, and higher unemployment rates for Natives, being able to buy a home on the off-reservation market has always been more challenging for Natives, Brunsch said.
“We’ve been facing this forever in Indian Country,” she said. “But it’s not just about Indian Country anymore. There’s a need to keep home ownership happening for everyone and we need creative solutions to make that work so we can all benefit.”
— This article was produced by South Dakota News Watch, a non-profit journalism organization located online at SDNewsWatch.org.