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Since various factors keep homeownership away from Americans, many would-be homeowners are pessimistic, doubting that they will ever achieve this goal.
Prospective buyers point to two important obstacles that prevent them, according to a young Bank transaction report. About half, 51%, point to a high cost of living and 54% say they have insufficient income given where housing prices are now.
The site polled 2,267 US adults, 864 of whom are aspiring homeowners, in late January. Bankrate defined aspiring or prospective homeowners as those who have either owned a home in the past but do not currently own one, as well as those who have never owned a home but wish to own one someday.
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When asked about their ability to buy a home, 20% of would-be homeowners said they may “never” be able to save enough for a down payment and other expenses. Meanwhile, 30% said it could take at least five years, while 10% said it could take a decade or more.
“That’s a long time for people to wait,” said Mark Hamrick, senior financial analyst and head of Bankrate’s Washington office. “‘Never’ is a long time, [and] it may be five or ten years.”
Mortgage rates are once again over 7%.
High mortgage rates can contribute to would-be homeowners feeling that 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 ago. according in a September report from the Consumer Financial Protection Bureau. More people were denied mortgage applications for insufficient income in 2022 than in 2021.
Last week, the 30-year fixed-rate mortgage rose to 7.06 percent from 6.87 percent, a disappointing sight for those who expected steeper declines at the start of the year, Hamrick said.
While there are forecasts that suggest interest rates may begin to decline this year, “a series of unexpected events,” such as the Covid-19 pandemic, have caused interest rates to jump and fall 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 baseline or expectation within reason,” Hamrick said.
Home ownership costs more than a mortgage
Prospective buyers need to think beyond the down payment as they consider their timeline for home ownership. They need to be able to meet the new obligations associated with owning a home in addition to other financial goals, said Hamrick, who emphasized the need for emergency savings.
“Home ownership is not a one-off event that has no other effects on the economy,” he said. “There’s no doubt that repairs, maintenance and upgrades and renovations will be required as long as they have a home.”
If the homeowner isn’t prepared for such repairs and maintenance costs, those added expenses can lead to financial strain, making it harder to save for other goals and indirectly making you “house poor,” the certified financial planner recently told CNBC Preston D. Cherry. Cherry, its founder and president Concurrent Financial Planning in Green Bay, Wisconsin, is also a member of the CNBC Federation board.
It could be worse, Hamrick added: “It’s not just a matter of being poor at home, it’s a matter of taking on more debt because of the lack of flexibility in household finances.”
In addition to the high cost of living and low income, would-be homeowners also cited credit card debt (18%) and student loan debt (10%) as barriers to homeownership, according to the Bankrate report.