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With various factors putting homeownership out of reach for Americans, many aspiring homeowners are pessimistic, doubting their ability to ever achieve this goal.
Prospective buyers cite two main obstacles holding them back, according to a new report from Bankrate. About half, 51%, cite the high cost of living, and 54% say they are not earning enough income given home prices now.
The site surveyed 2,267 American adults, 864 of whom were aspiring homeowners, in late January. Bankrate defined aspiring or potential 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. Home but would like someday.
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When asked about their ability to afford a home, 20% of aspiring owners 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 a decade or more.
“That's a long time for people to wait,” said Mark Hamrick, chief economic analyst and head of Bankrate's Washington office. “'Never is a long time,' [and] “So it could be five or ten years.”
Mortgage rates exceed 7% again
High mortgage rates can contribute to aspiring homeowners feeling that their income prevents them from purchasing in the current market.
With interest rates rising sharply in 2022, the average cost of a monthly mortgage payment swelled to $2,045 in December 2022, an increase of 46% from $1,400 a year earlier, according to a September report from the Consumer Financial Protection Bureau. More people were rejected for mortgage applications due to insufficient income in 2022 than in 2021.
The 30-year mortgage rate rose last week to 7.06% from 6.87%, a disappointing sight for those who were expecting sharper declines early in the year, Hamrick said.
While there are expectations that interest rates may start to fall this year, “a series of unforeseen events,” such as the COVID-19 pandemic, have seen interest rates rise and fall sharply in recent years, he said.
“We have to acknowledge a high degree of uncertainty even though we want to understand that there is a baseline or forecast that is within reason,” Hamrick said.
The costs of homeownership go beyond the mortgage
Aspiring buyers need to think beyond the down payment when they consider their timeline for homeownership. They must be able to meet the new obligations that come with owning a home as well as other financial goals, said Hamrick, who emphasized the need for emergency savings.
“Homeownership is not an isolated event that has no other implications for finances,” he said. “There is no doubt that there will be repairs, maintenance, updates and renovations required as long as they own a home.”
If the homeowner isn't prepared for such repairs and maintenance costs, these additional expenses can lead to financial stress, making it difficult to save for other goals and indirectly making you “house poor,” said certified financial planner Preston D. Sherri told CNBC recently. Sherry, founder and president of Concurrent Financial Planning in Green Bay, Wisconsin, is also a member of the CNBC FA Board.
It could be worse, Hamrick added: “It's not just about being poor at home, it's about taking on more debt because of a lack of flexibility in household finances.”
In addition to a high cost of living and low income, aspiring homeowners also cited credit card debt (18%) and student loan debt (10%) as barriers to homeownership, the Bankrate report found.
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