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With several factors keeping homeownership out of reach for Americans, many aspiring homeowners are pessimistic and doubt they will ever reach that goal.
Potential buyers point to two major obstacles holding them back, according to a new Bank rate report. About half, 51%, report a high cost of living, and 54% say they do not have enough income given the current state of home prices.
The site surveyed 2,267 American adults in late January, 864 of whom aspired to be homeowners. Bankrate defined aspiring or prospective homeowners as those who have owned a home in the past but do not currently own one, as well as those who have never owned a home but want to own one someday.
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When asked about their ability to buy a home, 20% of aspiring homeowners said they may “never” be able to save enough for a down payment and other costs. Meanwhile, 30% said it could take them at least five years, while 10% said it could take them a decade or more.
“People have to wait a long time,” said Mark Hamrick, senior economic analyst and head of Bankrate's Washington bureau. “'It's never a long time, [and] It can also be five or ten years.”
Mortgage rates cross 7% again
High mortgage rates can contribute to aspiring homeowners feeling like their income prevents them from buying in the current market.
As interest rates rose sharply in 2022, the average cost of a monthly mortgage payment rose to $2,045 in December 2022, a 46% increase from $1,400 a year earlier. according according to a September report from the Consumer Financial Protection Bureau. More people were denied mortgage applications due to insufficient income in 2022 than in 2021.
Last week, the 30-year fixed-rate mortgage rose to 7.06% from 6.87%, a disappointing outlook for those who expected steeper declines earlier in the year, Hamrick said.
While there are predictions suggesting rates could start to fall this year, “a series of unexpected events,” such as the Covid-19 pandemic, have caused interest rates to spike and decline sharply in recent years, he said. .
“We have to recognize a high degree of uncertainty even though we want to understand that there is a reasonable basis or expectation,” Hamrick said.
The costs of home ownership go beyond the mortgage
Aspiring buyers should think beyond the down payment when considering the timeline to homeownership. They must be able to meet the new obligations that come with owning a home, as well as other financial goals, Hamrick said, stressing the need for emergency savings.
“Homeownership is not a singular event that has no other financial implications,” he said. “There is no doubt that repairs, maintenance, upgrades and renovations will be needed as long as they own a home.”
If the homeowner is not prepared for such repairs and maintenance costs, these additional expenses can cause financial strain, making it difficult to save for other goals and indirectly making them “house poor,” certified financial planner Preston D. Cherry. he recently told CNBC. Cherry, founder and president of Concurrent financial planning in Green Bay, Wisconsin, is also a member of the CNBC FA Council.
It could be worse, Hamrick added: “It's not just about being poorly housed, it's about going into more debt because of a lack of flexibility in household finances.”
In addition to the high cost of living and low income, aspiring homeowners also cited credit card debt (18%) and student loan debt (10%) as barriers to homeownership, according to the Bankrate report.
