Elevated interest rates and the uncertain state of the economy are leading a majority of potential buyers to hold back on home purchases, with many planning to wait until at least 2024, a new report found.
Approximately 64% of U.S. consumers plan to avoid entering the housing market until the
Certain minority groups are more likely to defer purchases than the general U.S. consumer. Approximately 68% of Asian Americans surveyed and 70% of Hispanics said they would wait before purchasing.
Because mortgage rates are high relative to the past few years, the current period is "crucial" in preparing for the home buying process, according to Thomas Parrish, head of U.S. retail lending product management at BMO.
"Homeownership has traditionally been one of the best ways to secure long-term financial gains, build equity and achieve real financial progress," he said in a press release, noting that many misconceptions still exist about the buying process.
But even most aspiring homeowners appear to believe it will take some time before rates get to an acceptable mark before they jump in. Among U.S. consumers planning to buy "soon," only 6% said they would take the leap this summer, while 4% expect to make a purchase in the fall. Meanwhile 32% said they would not enter the housing market until 2024 or later, after rates are expected to decline.
BMO's findings, based on surveys of 2,500 U.S. consumers conducted this spring, broadly correspond to other recent research,
Substantially higher rates have helped create a far different housing market compared to 2021, when they stayed near or below 3% for most of the year. Since September 2022, mortgage rates above 6% have become the norm as soon as the 30-year average surged past that threshold for the first time in 14 years,
But it is more than just interest rates dampening home buyer enthusiasm, BMO said. The current overall cost of housing was mentioned by 68% as a reason for some financial anxiety, the same share as in its December's index. The search for affordable housing is close to the most challenging it's been in more than 30 years, BMO said.
Worries about the state of their own economic health or fears of unknown expenses were behind consumers' anxieties as well, with 82% and 83% citing those factors, respectively. The shares represent a slight decrease from 83% and 85% in December.
While the wait-and-see approach to home buying offers little promise of a meaningful near-term turnaround many lenders would like to see, economists at the Mortgage Bankers Association and Fannie Mae, both see volumes picking up beginning in 2024. Younger consumers also offer opportunities for lenders down the road, even as they see homeownership challenges ahead. Close to 56% of Generation Z and younger millennials said home purchases are more difficult for them compared to their parents when they were at the same age.
At the same time, though, studies are consistently finding homeownership ranks high among Generation Z goals, with
When it comes to financing a new home purchase, 68% of American consumers plan to borrow from financial institutions or lines of credit, according to BMO. Meanwhile, 46% said they would tap into personal savings to help pay for the property, including the downpayment, while 23% said they expect to receive some support from family or friends.
