2023 was a challenging year for aspiring first-time homebuyers. High mortgage rates, rising home prices, and low inventory levels made it difficult for many to achieve the American Dream. According to a new study, a significant number of aspiring homeowners have completely given up on the idea of owning a home.
A study conducted by the online arm of the long-running home improvement TV show This Old House revealed that 50% of those who have abandoned their homeownership dream cited affordability as the main reason. The research team surveyed 3,000 aspiring homeowners to determine their views on homeownership and the biggest barriers they face. Despite the challenges, 85% of those surveyed still plan to pursue buying a house this year.
However, it’s not surprising that 15% of potential homebuyers have given up. Goldman Sachs reported in October 2023 that housing affordability is worse now than it was during the 2008 financial crisis. Redfin also found that Americans need to earn nearly $115,000 to buy a house, which is $40,000 more than the median household income in the U.S.
This Old House found that one in five aspiring homeowners failed to purchase a home in 2023, with affordability being the main issue. “Difficulties in affording down payments and concerns about mortgage rates were cited as barriers to purchasing a home,” said Taelor Candiloro, a researcher on This Old House’s reviews team. The study also revealed that 30% of respondents would be willing to accept a mortgage rate higher than 6% if it meant finally buying a home.
The top factors preventing aspiring homeowners from purchasing a home in 2023 included high home prices, mortgage rates, moving costs, down payment costs, credit scores, debt, and low inventory levels. Mortgage rates reached a peak of 8% in October 2023, and the lack of available homes for sale made it a challenging year for many hopeful buyers.
Willing to compromise
Although 20% of aspiring homeowners were unable to make a purchase due to the aforementioned factors, 72% of unsuccessful buyers still plan to buy a home in 2024. Many of them are willing to compromise to make homeownership a reality. Some are willing to increase their budget, consider different areas, adjust their square footage expectations, and seek financial assistance from family members. There are also those who are willing to offer above the asking price.
In addition to the study, millennials and Gen Zers have shown creativity in their pursuit of homeownership. A Redfin study released in September 2023 found that two in five Gen Zers and millennials are working side jobs to save for down payments. Some millennials have even started asking for money to buy a home on their wedding registries. The average 20% down payment on a starter home is around $70,000, so alternative sources of funding are becoming more common.
“Most of the first-time homebuyers I am working with are faced with challenges of affordability and competition,” said real estate agent Donna Incorvaja. “It’s not that they can’t afford to buy, but what they can afford in today’s market is very different from what a younger generation could buy three to four years ago.”
Sense of optimism
Despite the challenges, some aspiring homeowners still maintain a sense of optimism. Among those who failed to buy a home last year but still want to, some believe that home prices will decrease and inventory levels will improve, although this is uncertain in today’s housing market.
According to the study, 76% of prospective homeowners plan to utilize programs to lower their down payment, but many do not yet have a secured mortgage. Only 42% of potential 2024 homebuyers are preapproved for a mortgage, which is typically the first step in the home hunting process.
Some aspiring homeowners are also waiting to see how the 2024 presidential election will impact the economy and the housing market. “Real estate tax rates, deductions, and overall policies like increasing housing inventory may be affected as a new president steps in,” said Taelor Candiloro. “We found that 13% of aspiring homeowners are currently waiting to see how the 2024 election will impact our economy before making any decisions on purchasing a home.”
Despite the challenges, This Old House offers several tips for pursuing homeownership in 2024. These include conducting research on property taxes, putting down more money upfront, considering FHA loans, securing a mortgage preapproval, shopping for homeowners insurance, and creating a moving budget.
