Per Bloomberg
95% of Millennials Want to Buy a Home but Fear They Can't Afford It
12/23/2022
Shortly after the pandemic brought bidding wars among buyers to purchase a home in an under-supplied market, the situation worsened for first-time buyers as interest rates started to hike. While some buyers could take advantage of the historically low mortgage rates, others were left behind and now struggle to afford them.
The National Association of Realtors' deputy chief economist and vice president of research Jessica Lautz described the complicated real estate market.
“It's not just one factor that's holding back first-time home buyers — it's a number of factors,”
Higher mortgage rates make buying a home less affordable for first-time buyers. Rates fell down to a record 2.5% in January 2021 for the lowest average 30-year rate, per CNBC. As of press time, the average 30-year fixed mortgage rate is at 6.47%, per Time.
Experts are still torn regarding where they see 30-year fixed-rate mortgages headed, as some say that it could end the year at around 7% or remain at its current rate, per Forbes. Interest rates also had a 52-week high of 7.44%.
On top of interest rates, 3-6% closing costs are also factored into the loan amount. Despite the Fed's pausing rate increases, they are still projected to increase even more.
Homeowners that have also locked in a 2-3% mortgage rate not wanting to sell could also mean that inventory levels could be tighter in 2023, according to Morgan Stanley, per Fortune.
High-interest rates and high prices have affected some first-time buyers' decisions when purchasing a home. An example is a public relations manager, Kerry Tuttle, from Chicago, who decided to prolong her home purchase despite saving $35,000 for a downpayment.
Tuttle: “It was clear I was going to get less for my money if I bought in this market,”
Around the Chicago area, the November median sale price sat at $310,000, which is 20% higher than five years ago, per Redfin data. However, this is still a significant drop from its record high of $372,750.
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