High Home Prices, Mortgage Rates Worry Young Buyers

We research all brands listed and will earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

Younger generations could also be holding on to the American dream of homeownership, but they face big challenges in today’s difficult market.

A recent survey by brokerage RE/MAX shows that almost two-thirds of prospective Gen Z and millennial homebuyers within the U.S. are primed and desperate to own a house. Sixty-five percent say they feel knowledgeable in regards to the real estate market, and greater than half are confident about their financial preparedness. Nevertheless, that desire to purchase and cool down is tempered by concerns in regards to the lack of affordability.

“Homeownership continues to be a crucial milestone,” Amy Lessinger, president of RE/MAX LLC, said in a news release. “While current market conditions have impacted timelines, this generation of homebuyers is resolute of their desire to attain [it].”

Ads by Money. We could also be compensated should you click this ad.Ad

Affordability issues imperil homebuyers’ plans

High mortgage rates and residential prices, each attributable to inflation and a scarcity of enough inventory to satisfy demand, are amongst the foremost obstacles hindering Gen Z and millennial buyers (folks born between 1981 and 2012). But other concerns include additional costs that impact housing affordability, like closing costs and down payments.

Mortgage rates have been averaging near 7% for a lot of the 12 months, increasing the price of home financing and making it harder for would-be borrowers to qualify.

Higher rates have resulted in a typical monthly mortgage payment of about $2,900 on a $442,000 loan, the median home sales price last month. If the house price is higher, that payment easily surpasses $3,000.

Unfortunately for a lot of buyers, home prices keep climbing, although at a slower pace than a 12 months ago, and just how much an “inexpensive” home costs relies on its location. In response to a report from listing site Zillow, the worth of a typical starter house is $196,611 nationwide. Nevertheless, a starter home costs no less than $1 million in greater than 200 cities across the country and requires a much larger financial commitment.

Other aspects prospective Gen Z and millennial buyers need to think about when calculating affordability include the down payment and shutting costs.

In response to data from the National Association of Realtors, first-time buyers make a mean down payment of 8% of a house’s purchase price. Closing costs range between 2% and 6%. In a city where the starter home costs $1 million, meaning a down payment of $80,000 and as much as $60,000 in closing costs.

The mixture of those aspects has already led to a record variety of canceled sales contracts for the month of June, so it’s no wonder also they are a priority for prospective buyers.

Commonest worries for Gen Z and millennial buyers

There are other aspects that younger buyers view as roadblocks to homeownership under the present market conditions, in line with the RE/MAX survey. These include aspects before and after the house purchase. (Numbers don’t add as much as 100 because respondents were allowed to pick a couple of answer.)