Owning your own home has long been a staple of the American Dream. In the past, many Americans, even those living on modest incomes, were able to purchase a house and turn it into a family home. However, in recent years, the cost of buying a house has become more expensive in almost every way.
Amid inflation and the Fed’s interest rate hikes, home prices and mortgage rates are skyrocketing. Meanwhile, the average price of rent has increased as well, making it harder to save for a down payment. To top it all off, housing is projected to get more expensive.
Housing unaffordability now sits at levels not seen since the Great Recession. In its annual millennial housing survey published last week, Bank of America (BAC) addressed this in no uncertain terms: “Attaining the American dream is becoming more challenging than ever.”
During the pandemic, the country experienced a housing boom that drove up prices. Housing prices surged by over 40%. While this was great news for homeowners, it left renters in the dust.
Now, the pandemic-era trend of rising home prices has slowed to a crawl. But it has been replaced with a different problem: higher mortgage rates. For most of 2020 and 2021, the average 30-year fixed mortgage rate sat near 3%. Since then, the average mortgage rate more than doubled to around 6.5%.
This has priced some prospective homebuyers out of the market. Meanwhile, homeowners who locked in a lower mortgage rate when they purchased their property are less likely to sell. This limits the supply of homes on the market and increases competition for homebuyers who remain.
Navigating the Market
With inventory low and mortgage costs high, many would-be homebuyers are staying on the sidelines for now.
If you’re committed to buying a home in the next few years, you may consider prioritizing affordability over location. In some cases, you may have a better chance of finding a home within budget if you’re willing to relocate to more affordable markets across the country.
But for now the sidelines aren’t the worst place to wait. With any luck, the housing market will stabilize in the coming years and give Americans a chance to catch up.
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