There is some news hot off the press from the Federal Reserve Bank of New York, and it’s not the greatest for those of us dreaming of owning a home, especially if we’re renting. This survey they did? It’s showing that buying a house has gotten a whole lot trickier. So, what’s the deal? Let’s dive in and find out.
______________________________________________________________________
- Renters feel like owning a home is a distant dream. Getting a mortgage is tough, as interest rates are high, and house prices are still expensive.
- The survey also found that renters expect rental prices to keep going up next year. This makes saving money for a down payment on a house even harder.
- The government could help by making it easier to build more houses, supporting down payments, and teaching people more about finances.
______________________________________________________________________
The American Dream of Owning a Home Feels Further Away Than Ever for Renters
The survey found a big drop in the number of renters who think they’ll ever own a house. In February 2024, only about 13.4% of renters felt confident about achieving this goal. That’s a record low for the survey and a huge decrease compared to 2023 (15%) and way less than the peak of 20.8% in 2014. This sharp decline shows how much harder it is for renters to jump to homeownership.
One major reason for this pessimism? Getting a loan for a house, called a mortgage, seems way tougher than before. The survey found that 74.2% of renters think securing a mortgage would be difficult. This makes sense because getting approved for a loan now feels stricter than ever. Banks and lenders might have tougher requirements, like needing a bigger down payment, the amount of money you pay upfront for the house.
Adding to the problem are stubbornly high interest rates on mortgages. Right now, the average interest rate for a 30-year fixed-rate mortgage is around 7.22%, according to Freddie Mac, which buys and sells mortgages.
This is the highest level since late 2023! Think of it like this: the interest rate is like an extra fee you pay on top of the loan amount every month. So, with higher interest rates, your monthly mortgage payment goes up, making it even harder to afford a house.
Even though house prices aren’t increasing as quickly as they used to be, they’re still very expensive. The typical price of a house in the US was $388,700 in February, according to the National Association of Realtors (NAR), which represents real estate agents.
That’s a lot of money! This means the average monthly payment for a mortgage could be around $2,040, which is a big chunk of your paycheck.
Things don’t get much better when you look at what renters expect for the future. The survey found that people think house prices will increase by about 5.1% next year. That’s almost double what people expected last year, even more so than house prices that typically went up before the pandemic! This means that even if you save for a down payment, the house you want might cost even more next year.
There’s a little glimmer of hope – the Federal Reserve, the folks who control interest rates, might lower them later in 2024 to help with inflation. But renters aren’t so sure. The survey found that they think mortgage rates will increase in the next few years, maybe to a shocking 9.7% in just three years! This would make buying a house even more out of reach.
The survey offers little comfort to renters either. They expect rental prices to keep rising next year, with an increase of almost 10%! This cost jump is one of the largest the survey has ever seen. It’s a sign that renters are now shelling out more monthly cash for rent. And on top of that, they’re still trying to save up for that down payment on a house. Tough times, indeed.
The combined effect of these factors is likely to greatly impact where people live. According to the survey, people are planning on moving less than before. That goes for both renters and homeowners. Why? They might need some extra support to make a move happen. But here’s the thing: if fewer folks are moving around, it could make it tough to find new jobs in different cities or regions.
Finding Solutions Together
We need to take a multi-step approach to tackle this tricky issue. Here’s where the government could lend a hand:
- Building More Homes: Encourage cities to streamline building permits and offer tax breaks for affordable housing projects.
- Down Payment Support: Create programs that match savings or offer tax breaks for saving towards a down payment.
- Making Loans More Accessible: Work with lenders to ease requirements for qualified borrowers with good credit.
- Financial Education: Support programs that teach people about mortgages, budgeting, and other financial skills needed for homeownership.
The housing market also needs to adjust, with prices potentially stabilizing or decreasing to reflect the new interest rate environment. Builders need to adapt their practices to keep costs down. The government, lenders, builders, and even everyday people can improve together. The dream of owning a house might not be out of reach for so many,
Sign up for our newsletter and unlock the secrets to homeownership in today’s market.
Leave a Reply