The U.S. population has all sorts of goals. But of all that we strive for in our lives, seems we place the highest priority on owning a home. In recent surveys, three-fourths of respondents said owning a home is “the leading component of the American dream.”
And yet, just about the same percentage of people say housing is too expensive to buy. With each year, it feels like fewer can afford to buy a home. It’s almost like buying a home is a wealthy person’s thing.
Homeownership is still the centerpiece of the American dream, but affordability issues such as high home prices, income that is too low or not being able to afford the down payment and closing costs are holding back nearly 3-in-4 aspiring homeowners.
—Greg McBride, chief financial analyst at Bankrate LLC
You said it, Greg.
How Do Hopeful Home Buyers Do It?
Throughout the past year, many people across the country have tried to buy homes. Only one in four of them have succeeded. Why? Mainly, because the interest rates on a 30-year fixed mortgage shot up, hitting 7.8% in October 2023. That makes mortgages harder to afford.
As we’ll see, though, that high mortgage rate issue is getting somewhat better.
In addition to Bankrate LLC’s report, we now have NerdWallet’s 2024 Home Buyer Report. Most respondents told the Harris Poll market research company they would buy in 2024, but that they face obstacles in the housing market.
It’s a pretty unforgiving market. The most common hurdles buyers face?
- Higher living costs (inflation) and income not keeping up with those costs.
- Not enough homes for sale — and the ones that are for sale are too expensive.
- High mortgage rates — more on this below.
- The need for more time to build credit or save enough for a down payment. More on this below, too.
- Too much debt versus income to qualify for a mortgage.
And quite a few people have decided, for the time being, to delay applying for a mortgage. More than half of today’s renters say they don’t think they’ll ever be able to buy a home. It’s understandable that so many feel this way. The National Association of REALTORS® says prices on sellers’ listings have risen more than 50% since 2019.
While people tend to focus on individual financial situations, the bigger problem is the way the market’s going. Big price tags. A shortage of listings. Elevated interest rates.
Hopeful Buyers Try Not to Back Down
So many people are trying hard to buy a home. Why are they committed to this goal?
A home is an appreciating asset that can be borrowed against later in life. A home purchase puts a person’s name on the deed, so that they can manage and tap the value that deed represents. For many, a deed also represents a store of value to bequeath to kids and grandkids, or to leave to close friends or good causes.
And oh, the things people struggling to buy homes will do! The Bankrate® survey shows that people will:
- Move away from cost-prohibitive markets — even choosing a home out of state.
- Take on a fixer-upper.
- Seek out a home with fewer square feet, or maybe a tiny home, and embrace minimalism.
- Live in a multigenerational home.
- Move away from the workplace (to go remote or hybrid, or become self-employed).
Overall, buyers know they’re going to have to do more with less. Not that buying should be about self-deprivation. But it can force a reckoning as to what we value most.
Who Is About to Buy? Some Say 2024 Is Their Year
Interest rates peaked in October, and seem to be inching downward. Since October 2023, when average rates nudged 8%, the 30-year fixed mortgage rate has settled down to a ~7% interest rate level. So, some people are heading back into the market. In 2024, 12% of the U.S. population intends to shop for a home. That’s a good deal of deed transfers!
Most want homes priced somewhere in the ~$275K range. The median price of existing listings is around $100K higher than that! Hopeful buyers will be comparing locations and mortgages carefully.
So, who are the most energized potential buyers, and where are they now? The 2024 home buyers tend to be:
- People from the cities. One out of five city residents surveyed aims to buy a home in 2024. That’s a higher percentage than exists in suburban or rural populations.
- The younger generations. One in five people aged 18-42 intends to purchase in 2024. Given today’s challenges, that’s an impressive portion of the younger populace. Nearly one in ten people aged 43-58 wants to buy this year. People in their 60s and older are less likely to buy.
Although the younger generation is stepping up to the market, they’re actually not the ones who say they value homeownership the most. People in their 40s and older tend to put homeownership higher on their lists. People in their 20s and 30s tend to put career success at the top of theirs.
One brow-raising factor stands out: Not even a third of hopeful 2024 home buyers have set up savings accounts to fund their down payments. Also interesting: Most current renters think a home purchase requires putting 20% down. Great if you can! But you don’t have to, and most people don’t. Plus, hopeful first-time buyers can apply for loans especially for them, and may be eligible for down payment assistance.
Boiling It Down: Our Key Takeaways
Here’s what we know:
- People make great sacrifices to own their homes.
- Those who can’t break into the market are typically blocked by high listing prices and borrowing rates that put financing out of reach.
- The rates may be easing in 2024. If and when they do, lower mortgage rates will make borrowing easier. Of course, this will lead the market to heat up — not what hopeful buyers want. Catch-22, anyone?
- Encouraged by the likelihood of lower mortgage rates, some 12% of U.S. adults say they plan to buy this year.
It’s clear that many are struggling in a market that’s been awfully harsh for several years running. For some, buying a home would be a cherished personal milestone. We wish all the hopeful but delayed buyers an easier time in 2024.
Supporting References
Jeff Ostrowski for Bankrate, LLC, part of Red Ventures, via Bankrate.com (which commissioned the poll done by YouGov Plc): 73% of Aspiring Homeowners Cite Affordability as Their Primary Obstacle Bankrate (Apr. 19, 2023).
Elizabeth Renter for NerdWallet, Inc. via NerdWallet.com: Home Buyer Report – Enthusiasm About Homeownership Wanes for Some as Obstacles to Homebuying Rise (Jan. 23, 2024; citing a Harris Poll survey conducted on behalf of NerdWallet in November 2023, and data from the National Association of REALTORS®).
Amina Niasse for Reuters®: US Annual Home Prices Rising Despite Fourth-Quarter Slowdown, FHFA Says (Feb. 27, 2024).
Rose Morrison for The Simplicity Habit via TheSimplicityHabit.com: Embrace Minimalism in a Consumer Economy? (Sep. 3, 2023).
And as linked.
More on topics: Gig worker’s guide to homebuying, First-time home buyers
Photo credits: Ketut Subiyanto and Andrea Piacquadio, via Pexels/Canva.