Why buying a home is out or reach for so many South Dakotans

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 percent from 2018 to 2022. Meanwhile, median household incomes in South Dakota rose by only 17 percent during that time, even with a healthy 10.4 percent 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 Sassy, 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, it’s definitely a lot tougher to buy a home right now.”
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 percent 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 percent 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.
Lending experts use a general rule of thumb that homebuyers can afford a home that is 2 to 2.5 times their gross annual income. According to the U.S. Census, the median household income in South Dakota was $66,143 in 2021, meaning that those families could afford a home of ranging roughly from $132,000 to $165,000. The difficulty in South Dakota lies in the fact that inventory of homes is extremely low in that price range, especially in bigger cities.
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 percent) were priced at $100,000 or below, and only 399 (18.7 percent) were listed at $200,000 or less. In Sioux Falls, only three of 512 homes for sale were priced at $100,000 or less, and only 57 were $200,000 or less. In Rapid City, only one single-family home of out of 336 on the market was listed under $100,000 and 31 homes were under $200,000.
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 path to homeownership has always required a mix of hard work and determination, from saving for a down payment to obtaining steady employment that can cover a mortgage.
For decades, the South Dakota real estate market was remarkably stable, with generally good values and reasonable sales prices that rose slowly and fell behind wage growth at a relatively slow pace. The state hardly saw a bump in the market while the rest of the country underwent a massive real estate bubble that burst in the late 2000s and early 2010s.
But the COVID-19 pandemic caused a massive interruption in the housing market in South Dakota and across the U.S. Rental rates rose quickly and median home prices jumped as the cost of building, maintaining and owning a home rose due to inflation, supply-chain issues and reduced inventory of properties. An overall lack of good-quality affordable homes has been an increasing challenge to homeownership for years in the U.S.
However, South Dakota experienced a unique and unexpected interruption to its real estate market over the past two years that has created a new barrier to affordability of homes.
As COVID-19 infections rose across the country, starting in early 2020, many states imposed restrictions, mask mandates or both on businesses, schools and gatherings to try to reduce the spread of the virus. Differences in opinion on how to manage the virus led to a divisive politicization of the pandemic and the response by governments.
In overt regional and national messaging pushed by Gov. Kristi Noem, South Dakota declared itself free from COVID-related mask mandates or shutdowns. In consistent advertising, news-media appearances and messaging on social media, Noem in particular pushed the idea that South Dakota was open for business and that freedom reigned as she openly encouraged people to move here.
Even without hard data to support the concept, 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, and from areas where home prices were much higher. The new residents may mean higher sales and property tax revenues for the state and local governments in the long haul.
But their arrival led in part to a run on homes in South Dakota and what many described as a “frenzied” housing market, in which prices rose as out-of-state buyers made offers that were sometimes tens of thousands of dollars above asking price and even sight-unseen on some properties.
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. “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 percent in June 2022, the highest rate in 40 years, and was just over 7 percent in November 2022. Furthermore, the state economy is not well positioned to see major increases in wage growth, with 36 percent of South Dakotans employed in relatively low-paying industries such as service and retail, sales and office positions. South Dakota ranked 41st in the nation in 2021 with a median annual salary of $37,700 for employed adults, according to the Bureau of Labor Statistics.
“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 percent annual percentage range before the pandemic to above 6 percent 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.
At least for now, Ennis is concerned that many residents of South Dakota, especially adults in their formative years, are being shut out of homeownership.
“Has South Dakota become unaffordable, is the American Dream dead here; I think it’s a temporary state of time where the answer today is yes,” 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.”
Yet not everyone is convinced that homeownership has become out of reach for a majority of South Dakota residents.
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.”
While acknowledging that the pandemic period led to a more competitive market with higher home prices generally, Martens noted that “the real estate crystal ball has been broken for hundreds of years,” and that a downward pricing correction is not only likely, but is already showing up in Sioux Falls and other South Dakota markets.
Sasso, the Rapid City agent, also suggests that homebuyers should be more assertive in seeking for help from government agencies, community development groups or lenders to find down-payment assistance or other programs that can lower interest rates or loan principals.
One theoretical mortgage model supports the idea that affording a home is possible for South Dakota families with middle incomes.
To buy a $300,000 home and not be “house burdened,” which is paying more than 30 percent of gross income on a mortgage, a family would need to make $88,000 a year, assuming savings to cover a 5 percent down payment and borrowing for 30 years at 6 percent. The income level in that same scenario for a $200,000 home is about $61,000 a year.
That equation, however, becomes tricky at a time when costs are way up for all other basic living expenses — including food, clothing, vehicles, energy — and with rents that have risen as high as a mortgage payment in many cases in South Dakota that make it harder to save. That payment model requires great discipline to save for a down payment, to limit other debt and, one hopes, to avoid any unforeseen financial emergencies.
Some leaders worry that lower levels of homeownership may slow the future growth of small towns and urban economies across the state.
As the housing problem simmers in small towns and cities across the state, the situation in Sioux Falls could reach a boil if solutions aren’t found or a major downward pricing shift doesn’t occur. The state’s largest city has a high quality of life, a vibrant economy and an expanding employment base, but maintaining those positive trends will require homes that are accessible and affordable for employees who will drive the Sioux Falls economy forward, said Mike Lynch, executive director of Forward Sioux Falls, a local economic development group.
“That needs to remain a priority for us as a community, because if we want to continue to recruit people to Sioux Falls, adequate, accessible housing is going to be an integral decision in whether people move here,” Lynch said. “It needs to be affordable, and there needs to be a supply of housing that runs the spectrum from low-cost, maybe first-time homebuyer, to executive homes.”
Lynch remains optimistic that between city officials, civic leaders and those in the housing industry, collaborative efforts can be made to improve access to good-quality housing in the Sioux Empire region.
“Certainly home ownership is a dream, a goal and for some people a big need, but the rental market will also remain very important,” Lynch said. “However, we know that our community has placed itself in a position to respond to a lot of different challenges, and we’ve been very successful for a number of reasons to attract individuals to live, work and play here, so hopefully we’ll come up with some sound ideas to help make a significant impact for the future as it relates to housing in Sioux Falls.”
Partnerships critical to help with housing
Help for homebuyers is possible, especially those with lower-incomes in South Dakota, said Lorraine Polak, executive director of the South Dakota Housing Development Authority.
The agency uses federal low-income guidelines to qualify for help, and in fiscal 2021-22 made nearly 2,200 overall loans of $421 million and provided more than $13 million in down-payment assistance, according to state data. The agency has numerous housing agency partners across the state that work on the local level to assist people who need help finding and affording a home.
Data about the typical housing-authority client reveals that people with lower incomes take years in the workforce to obtain a position where they can buy a home. Last year, the average age of clients in the first-time homebuyer program was 31, and their average income was about $58,000.
Polak said the state is hopeful that government guidelines will be expanded to allow more South Dakotans to qualify for help, and she has been impressed with how individual communities across the state have responded to the housing crisis.
“I see so many communities that are now invested in housing and in their workforce; they are becoming involved and being creative in addressing that,” Polak said. “They are trying to develop lots that are more affordable and rehab homes to get them back on the market, and they have started to make a difference to create more opportunity for people who need housing.”
At the ground level of the housing equation, homebuilders play a critical role in developing new housing stock to accommodate growth. But building homes in the range of $300,000 or close to that has become incredibly difficult, said Tom Jarding, a Sioux Falls custom homebuilder who is 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. “What we’ve seen take place with cost increases these last few years, it has been a struggle for builders to get under that $300,000 price point on a new home.”
Jarding said many builders refuse to cut corners and reduce the quality of the finished product in order to make homes more affordable at a lower price. Furthermore, Jarding said a cultural shift has taken place such that even the youngest homebuyers want amenities they grew up with but cannot really afford.
“You don’t want to just build a cardboard box, you want to give them a quality home,” Jarding said. “And I think there’s a market expectation that has shifted to where kids coming out of their parents’ home, they don’t need marble countertops or a walk-in shower, but that’s what they want. I see consumer expectations in some cases driving themselves in the direction of unaffordability.”
One effort that could have jump-started development of workforce housing across South Dakota was scuttled in 2022 due to legislative discord. A $200 million loan and grant program using a mix of state and federal funding for new home infrastructure stalled due to squabbling between Gov. Noem and Republican leaders in the Legislature. That program, expected to return for a vote in 2023, is the type of help homebuilders need to spur immediate development of affordable housing in South Dakota, Jarding said.
In his role as a representative of the homebuilding industry, Jarding is involved in frequent ongoing discussions with government officials, civic groups and association members to seek solutions to the housing accessibility and affordability issues in Sioux Falls with a specific eye on trying to develop more affordable and workforce housing.
However, Jarding doesn’t believe that the housing industry can or should rely on government long term to solve the affordability equation. One idea he floated is for a group of homebuilders to join forces and share investments in large-scale projects where economies of scale could bring down the price of finished homes.
“We can’t just sit here for another five years and wait for things to move in the right direction,” Jarding said. “Hopefully with some public funding and public-private partnerships we can get the ball rolling now, and then we can come up with some of the longer-term solutions moving forward.”
Home buying harder
for rural residents, people of color
Not unlike in metro areas of the state, the path to homeownership in rural and reservation areas is stymied in many places mostly due to low family incomes and low availability of affordable homes, said Peter Smith, director of the Rural Office of Community Services in Wagner.
Smith has used a number of housing programs to help lower-income residents of southeastern South Dakota find rental properties or homes to purchase.
Even with substantial government assistance, however, options remain few for people who need housing in the region from Mitchell to Yankton, Smith said.
“You see some beautiful neighborhoods they’re building, but those houses are not being built for people working at McDonald’s,” he said. “The overall inventory is low, and we’re also getting more immigration here.”
Smith said he knows of employers who have bought abandoned roadside motels and fixed them up to house immigrant laborers, and of people who have given up on homeownership and instead have taken up full-time residence in RVs at campgrounds.
Even for a middle-income professional couple, however, Smith said it’s a very challenging market to find a decent available home for purchase.
“If you just started a new job at Yankton High School or Mitchell High and you’re looking to purchase a home, I wish you the best unless you find some tiny old home in a small town,” Smith said. “The inventory for them is nonexistent unless they have some money saved or family support.”
In Sioux Falls, the disparity in homeownership rates is significant between white residents and those of color, according to a 2021 local housing study by Augustana University.
While 65 percent of white households have obtained homeownership, only 19 percent of Native American residents and 14 percent of Black residents of Sioux Falls own a home, the study showed.
The study also showed that 40 percent of renters in Sioux Falls were considered “housing burdened” by paying 30 percent or more of their income in rent, and one in five homeowners was housing burdened.
Those figures do not bode well for a city and a state where many industries are trying to lure immigrants and other workers to fill open jobs and allow for economic growth.
In some ways, South Dakota mirrors national trends in the real estate market, and many of the affordability concerns present in the Rushmore State exist across the country, especially for lower-income residents and people of color.
A recent report by the Joint Center for Housing Studies at Harvard University revealed that while the real estate market remains volatile, hurdles to homeownership for lower-income and minority households may linger beyond any market corrections.
“After a record-shattering year in 2021, the housing market is at an inflection point,” reads a summary of the 2022 State of the Nation’s Housing report. “Higher interest rates have taken some heat out of the homebuying market, and the large number of apartments under construction should bring some relief on the rental side. For lower-income households and households of color, though, the pressure of high housing costs is unlikely to relent.”
Meanwhile, 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.
For Native Americans living on reservations, the rapidly rising prices in the non-reservation market do not affect home prices since much of the land is held in federal trusts that are not as susceptible to pricing fluctuations, Brunsch said. In general, Native Americans also qualify more easily for some government assistance programs that can provide down-payment help and reduced lending rates, she said.
However, the recent rapid rise in off-reservation home prices has made it even harder for Natives living in South Dakota cities to buy homes, Brunsch said. In August 2022, Brunsch and her adult son began to look for a home for him in Rapid City and were shocked to see the quality of so-called affordable homes.
“There was almost nothing for $250,000 and we’re talking about homes in really poor condition that are going to need a lot of work,” she said, adding that they have suspended their search until home prices come down a bit.
Brunsch said the new challenges facing potential homebuyers across the state should prompt innovative ideas and renew efforts to help people obtain homeownership in both Native and non-Native communities.
“It’s not just about Indian Country anymore,” she said. “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.”