Trio of challenges keeping millions from a key part of the American dream

Aspiring homeowners are finding it hard to get that first foot on the property ladder as the cost of living, limited income, and debt burdens stand in their way.

A new report from Bankrate.com highlights the struggle for millions of Americans who say that the current economic challenges or their own income is limiting their ability to afford a down payment (51% said this) or closing costs (54%) for a home.

The issue will be exacerbated by a continued rise in home prices, with the S&P Case-Shiller Index up 5.5% year-over-year in December according to newly released data. While the overall annual pace of price rises was just 2.4%, compared to almost 15% in 2022 and an average 5.2% between 2014 and 2019, higher mortgage rates and the overall cost of living has weakened affordability for many.  

Bankrate’s survey also shows the impact of growing credit card debt on would-be homebuyers’ abilities. Almost one fifth of respondents said these debts are holding them back with 10% citing student debt. These barriers combined rise to three in ten among millennials. Friends and family not being able to help out with homebuying costs was cited by 15%, with this a bigger problem for younger poll participants.

“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,” said Bankrate senior economic analyst Mark Hamrick. “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.”

ACHIEVING THE DREAM

Of those homebuyers who have managed to achieve a key part of the American dream, 41% said they had saved specifically for a down payment, 14% had received a gift from family or friends, 9% had received a loan from family or friends, 14% used a first-time homeowners grant or loan assistance program, 9% had taken out money from retirement savings, 8% got an additional source of income, 7% sold personal items, and 6% moved in with friends or family.

But emulating this success seems beyond the dreams of 20% of aspiring homeowners who say they will never achieve it. Older generations are more likely to think this, perhaps feeling they have left it too late to save the required amount.

Asked about mortgage rates, 39% think mortgage rates will remain elevated for the foreseeable future, while 38% say a buyer needs excellent credit to get a mortgage, and 17% say that renting is cheaper than buying a home. “If mortgage rates edge down this year as many expect, more Americans should find modest improvement with housing affordability,” Hamrick added. “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.”