Homeownership Dreams Deferred: Affordability Crisis Grips Millennials and Gen Z
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The dream of homeownership is slipping further out of reach for many Americans, notably millennials and gen Z, as soaring prices and fluctuating mortgage rates create a formidable barrier to entry. For Lorene Cowan, 44, a business and life coach in New York City, owning a home feels increasingly distant. “I would love to buy a home. ThatS the next step,” Cowan said, but added, “in New York, the entry has become so much more challenging.”
The median listing price in New York City now exceeds $829,000,representing a 3.8% year-over-year increase, according to Realtor.com. This surge underscores the challenges facing prospective homebuyers in one of the nation’s most competitive real estate markets.
A National Trend: Delayed Homeownership
The affordability crisis isn’t limited to New York.Rising prices across the country are delaying homeownership for a growing number of first-time buyers, particularly millennials. The median age of first-time homeowners in the U.S. has reached an all-time high of 38 years old,according to a 2024 report by the National Association of Realtors (NAR).This is a stark contrast to the 1980s,when the typical first-time buyer was in their late 20s. Currently, first-time buyers represent just 24% of the market – the lowest share on record, as reported by NAR.
The Impact of Mortgage Rates and Economic Uncertainty
Even a recent slight decrease in mortgage rates hasn’t significantly improved the situation. While rates have fallen from their recent peaks, the average rate for a 30-year, fixed-rate mortgage remains just above 6.5%, according to Freddie Mac – a substantial increase from the sub-3% levels seen at the start of the pandemic. “The American consumer has gotten very used to the low-rate environment that has spanned over a decade,” one industry analyst noted.
A Bank of America study revealed that 60% of current homeowners and prospective buyers are uncertain about whether now is the right time to buy – a three-year high. This hesitation is fueled by concerns about the future direction of interest rates. “not knowing if rates are going to come down or go up is adding to the uncertainty in the marketplace,” the study found.
The “Housing Lock-In” Effect
The current market is also characterized by a “housing lock-in” effect, where homeowners are reluctant to sell as they would forfeit their existing low mortgage rates. This limited supply further exacerbates the affordability problem,”holding back first-time home buyers from entering the market,” according to Lawrence Yun,chief economist of the National Association of Realtors.
Will Rate Cuts Provide Relief?
The Federal Reserve’s potential actions regarding interest rates are closely watched. Federal Reserve Chair Jerome Powell indicated in July that the central bank had not yet determined whether it would cut its benchmark interest rate at its September meeting. However, experts caution that even a rate cut doesn’t guarantee lower mortgage rates.”Mortgage rates are more directly tied to the 10-year Treasury,so it’s entirely possible mortgage rates remain flat or even increase regardless of where the Fed moves in September,” a wealth strategist at TD Wealth explained.
Despite this uncertainty, a meaningful portion of prospective homebuyers anticipate falling rates. roughly 75% expect both home prices and interest rates to decline and are delaying their purchases accordingly, according to Bank of America. Approximately 32% of Americans stated they would need mortgage rates to fall below 6% to feel agreeable buying this year, while a concerning 51% indicated they wouldn’t buy at any rate in 2024 – a 13 percentage point increase from last year’s survey.
Despite the challenges, millennials and Gen Z continue to view homeownership as a crucial wealth-building prospect and a significant life achievement. As one head of consumer lending at Bank of America put it, “It’s just taking longer for them.”
