Aspiring Homeowners Say Cost of Living, Inadequate Incomes Are Barriers to Buying a House: Survey

A single-family home for sale in Philadelphia on Dec. 1, 2023. Matt Rourke/AP Photo

Most aspiring homeowners say the high cost of living and insufficient incomes are barriers to purchasing a home in the current real estate market, according to a new Bankrate survey.

Fifty-one percent of people who want to buy a residential property think the cost of living is too high. Fifty-four percent believe their income isn’t high enough to cover a down payment or the closing costs for a home.

Other reasons listed in the Bankrate survey for being unable to buy a home are the lack of financial assistance (15 percent) and student loan debt (10 percent).

A fifth of prospective homeowners also say they will never be able to save enough to purchase a home. Close to one-third (30 percent) believe it will take five years or more, while 10 percent think it will take a decade or longer.

Debt is a substantial hindrance in the homebuying process, says Mark Hamrick, a senior economist analyst at Bankrate.

“For prospective home buyers, debt can be the financial equivalent of quicksand suffocating capability and potentially blocking entry over the threshold of a dream home,” he said.

“With credit card interest rates as high as they are, take heed of the flashing red light which warns us to avoid allowing debt to accumulate.”

According to the Federal Reserve, the average credit card interest rate hovers around 22 percent. Additionally, recent central bank data show that credit card debt is at an all-time high of $1.2 trillion.

But not only credit card debt and rates are hurdles to achieving the American dream of homeownership. Mortgage rates have been climbing again, adding to homebuying costs.

The Mortgage Bankers Association confirmed on Feb. 28 that the 30-year mortgage rate is above 7 percent for the second straight week. Freddie Mac’s weekly Primary Mortgage Market Survey showed that the 30-year fixed-rate mortgage was 6.9 percent for the week ending Feb. 22.

After easing from the October 2023 high of 7.79 percent, mortgage rates started rising again, fueled by hotter-than-expected inflation data and solid economic growth.

“Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market,” said Sam Khater, chief economist of Freddie Mac.

“The current cycle is different than historical norms, as housing affordability is so low that good economic news equates to bad news for homebuyers, who are sensitive to even minor shifts in affordability.”

Mortgage costs have exacerbated housing affordability challenges. However, if mortgage rates slide throughout 2024, “more Americans should find modest improvement with housing affordability,” Mr. Hamrick said.

“Along with the interest rate question, it depends on the future direction of home prices and whether the market will continue to be dogged down by the thorny challenge of an insufficient supply of homes available for sale.”

Thirty-nine percent of Bankrate survey respondents say mortgage rates will remain elevated for the foreseeable future.

Record Home Prices

U.S. home prices continue to record fresh record highs.

In January, the median existing-home price increased by 5.1 percent from the same time in the previous year to a record high of $379,100, National Association of Realtors (NAR) data show.

“The median home price reached an all-time high for the month of January,” NAR Chief Economist Lawrence Yun said. “Multiple offers are common on mid-priced homes, and many homes were still sold within a month. The elevated share of cash deals—32%—indicated a market full of multiple offers and propelled by record-high housing wealth.”

In December 2023, the price of homes in the 20 largest U.S. metro areas climbed for the 11th consecutive month, rising by 0.2 percent, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.

Brian D. Luke, head of commodities and real and digital assets at S&P Dow Jones Indices, noted that the 2023 home price gains surpassed the annual average of the past three decades. He anticipates “above-trend growth” for home prices this year.

“With trend growth at the national level of 4.7%, a 5.5% return demonstrates solid, steady growth,” he stated. “While we are not experiencing the double-digit gains seen in the previous two years, above-trend growth should be well received considering the rising costs of financing home mortgages.”

State of Housing Affordability

Housing affordability conditions deteriorated in 2023.

Recent data from real estate firm Redfin found that fewer than 16 percent of homes for sale were affordable last year. A residential property is considered affordable if the projected mortgage payment doesn’t exceed more than 30 percent of the average local monthly income.

Affordability collapsed by 40 percent from before the COVID-19 pandemic and by 21 percent from the previous year, Redfin noted.

But will the situation improve in the year ahead? This is the current debate among housing experts.

The expectation is that home prices will continue to rise but at a slower pace compared to recent years. Several factors will influence the housing market in the coming years, including mortgage rates, lending standards, and the economic climate.

Supply will also play a significant role. Industry estimates suggest the country is short by as much as 7.2 million homes after years of underbuilding relative to population growth.

New listings of homes for sale increased by 13 percent year over year in the four weeks ending on Feb. 25, the biggest advance in nearly three years, a new Redfin report found. However, the challenge is that elevated mortgage rates and record home prices have been largely deterring buyers.

In January, the NAR reported that pending home sales tumbled by 4.9 percent.