Affordability keeping you from owning a home? Here’s how you can get ready

High mortgage rates and home prices are why 18% of Millennials and 12% of Gen Zers believe they will never own a home, according to a recent Redfin report. Some Americans are turning to creative solutions to beat these odds.

Median home sale prices have risen 40% since 2019, and in that time, mortgage rates have surged to top 7%, hitting a 20-year high. The combination of these two put homeownership out of reach for many, especially first-time homebuyers. 

Other affordability challenges that keep young Americans from achieving their homeownership goals include saving for a down payment. Nearly half (46%) of Millennials and 33% of Gen Zers say their lack of ability to save for a down payment is a barrier. These two generations are also dealing with student loan bills once payments resume in October. One in five (21%) Gen Zers and 16% of millennials said they need to pay off their student loan debt before they’re able to buy a home, according to the survey.

“The worsening housing affordability crisis has an outsized impact on Gen Zers and millennials because they’re much less likely to own a home than older generations,” Redfin Chief Economist Daryl Fairweather said. “That means many young Americans don’t benefit from rising home prices by gaining equity. 

“Instead, these would-be first-time homebuyers bear the burden of high prices, high down payments and high monthly mortgage payments, without profits from a previous home to offset the cost,” Fairweather continued. “Many young people don’t have a choice between renting and buying. They’re renting their home because even though rent payments have increased, too, it’s still more affordable than buying in much of the country–and renters don’t need a down payment.” 

If you’re looking to buy a home, it can help to shop around for the best mortgage rates. Visit Credible to compare options from different lenders without affecting your credit score.

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Some try creative avenues to achieve homeownership

Despite these challenges, first-time homebuyers are finding ways to forge their path to homeownership. For example, many young Americans planning to buy a home next year are relying on side income to generate cash. Forty-one percent of Gen Zers and 36% of Millennials said they are working second jobs to save for their down payment and about one-quarter plan to use a cash gift from family, according to the Redfin survey. 

Some are finding creative ways to gain a foothold, according to a recent Realtor.com report. One option some consider to help pay off their mortgage and other bills is house hacking. This is when a buyer purchases a home intending to rent out rooms for the long or short term. 

The co-buying trend is another way young buyers share homeownership costs, according to the report. Co-buying helps friends and family pool resources to come up with down payments and closing costs. It is also a way to share costly monthly mortgage payments, utility bills, and maintenance and repair costs.

“Just be sure to carefully think through what these arrangements entail,” Realtor.com Executive News Editor Clare Trapasso said. “Being a landlord – or even an Airbnb host – can be hard work. There’s a risk that tenants and guests could become a nuisance, damage your property, or cause other problems.”

Additionally, these home hacking ideas may not help buyers qualify for a loan because lenders don’t consider future rental income in the mortgage approval process, according to Trapasso.  

If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders and choose the one with the best rate for you.

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Housing supply improving

One factor that has pushed home prices up is a lack of supply. Supply is partly so low because the ultra-low, pandemic-era mortgage rates keep homebuyers locked into their existing deals.

However, there are signs that the supply issue could be improving, according to a recent Zillow report. Sellers listed nearly 350,000 homes for sale across the U.S. in August, about 4% more than in July. The number of new listings is still more than 20% below pre-pandemic norms, but the month-over-month increase comes when supply typically slows. New listings have contracted every August since 2018, Zillow said.  

“Those still shopping for homes late in summer were offered a bit of relief, and not all from expected sources,” Zillow Senior Economist Jeff Tucker said in a statement. “Competition for houses tends to ease up at this time of year, giving buyers more time to decide and a better chance to negotiate on price. What we didn’t expect — especially considering 7-plus-percent mortgage rates — was more new listings. The inventory crunch is still far from resolved, but this was a small step in the right direction.”

If you want to take advantage of interest rates before they potentially go up, you could consider shopping for the right mortgage or refinancing your existing one. Visit Credible to speak with a mortgage expert and get your questions answered.

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