Most Americans still dream of homeownership, but the majority are waiting for mortgage rates to drop before they climb the ladder, according to a recent survey.
Sixty-seven percent of respondents said owning a home was one of their most coveted goals, but 71% said they are waiting on rate cuts before entering the market, according to the BMO Financial survey. Of the Americans still planning to buy a home in the current market, 30% said they intended to pull money from their 401(k)-retirement plan to help cover the cost.
Americans will likely have to hold out through another summer for potential relief. Since July, the Federal Reserve has maintained the federal funds rate range at 5.25% to 5.5%. Fed officials have said they anticipate rate cuts for 2024 but need more confidence that inflation is heading toward the 2% target rate.
“In light of persistent strength in the U.S. economy, as well as stubborn underlying inflation, the market has been pushing its expectation for Fed rate cuts into the autumn,” Michael Gregory, the deputy chief economist at BMO, said. “Looking ahead to 2025, we expect the Fed to stick to a gradual rate cut pattern.”
Homebuyers can find the best mortgage rates by shopping around and comparing options. You can visit an online marketplace like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.
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Homeowners’ insurance costs add to delay
High mortgage rates are not the only thing delaying the dream of owning a home; 43% of respondents said that rising home insurance costs may impact their ability to keep or buy a home. Gen Z feels most impacted by these costs (60%), followed by Millennials (55%).
Homeowner insurance premiums have increased by 55% in the last four years as losses build and insurers struggle to recoup costs, according to a recent Guaranteed Rate Insurance report. In 2023 alone, insurance rates jumped 19%.
The rise in home insurance costs comes as Americans looking to become homeowners struggle with high mortgage rates and home prices. The average 30-year fixed-rate mortgage has held steady above the 7% range for the past month, according to Freddie Mac.
“It’s clear that Americans are feeling the strain of elevated rates, and many are uncertain about how to go about navigating the ever-evolving housing market,” BMO Head of U.S. Retail Lending Thomas Parrish said. “It’s critical, especially during periods of high rates, for customers to engage a mortgage advisor who can guide potential buyers and sellers through the homebuying journey, determine suitable budgets, and dispel common misconceptions about the pathways to homeownership – even if it currently feels out of reach.”
If you have a mortgage, you’re typically required to carry homeowners insurance, but you don’t have to stick with any particular insurance company. If you want to save on your home insurance costs, you could shop around for the best rate. Credible can help you compare home insurance rates from top insurance carriers all in one place.
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Homebuyers spending more than they can afford
Higher mortgage rates and home prices mean that 20% of Americans spend roughly 30% of their paychecks on monthly home loan payments, and 10% spend more than half of their pay, according to a recent NewHomesMates.com survey. The survey said those ready to take the plunge have had to sink a larger portion of their paychecks into mortgage payments and make significant cuts to everyday spending.
Based on the median annual salary and a 10% down payment, most first-time buyers can afford a home priced at about $207,529 — 38% less than the current median-priced home. Increasing the down payment to 20% lowers the salary threshold to $98,202, but saving that amount could take years, the Clever report said.
Some buyers are finding creative ways to gain a foothold in the challenging market, according to a recent Realtor.com report. One option some consider to help pay off their mortgage and other bills is house hacking. This is when a buyer purchases a home intending to rent out rooms for the long or short term.
The co-buying trend is another way young buyers share homeownership costs, according to the report. Co-buying helps friends and family pool resources to come up with down payments and closing costs. It is also a way to share costly monthly mortgage payments, utility bills and maintenance and repair costs.
If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders and choose the one with the best rate for you.
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