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Owning your own home has long been considered a key part of the American Dream. Yet, that dream is increasingly out of reach for many potential homebuyers today. 

More than half of aspiring homeowners say the current cost of living is too high for them to buy a home, according to a new Bankrate survey. A majority (54%) also cite insufficient income as a roadblock to affording a down payment and closing costs for a home. 

The survey defines aspiring homeowners as either those who have once owned a home but now don’t or those who have never owned a home but hope to someday. 

Why has home affordability gotten so bad? Here’s what you need to know about the 2024 housing market — and what you can do to make your homeownership dream a reality. 

What’s holding Americans back?

The high cost of living and low incomes are two main reasons aspiring homeowners say they can’t afford a home right now.

Home prices have skyrocketed over the past few years since 2020. During the COVID-19 pandemic, mortgage rates rose, reaching a two-decade high. Limited housing inventory further constrained supply and inflated values.

In many areas, home prices rose faster than wages. According to the Federal Finance Housing Agency, home prices rose 74% from 2010 to 2022. The average wage only rose 54% over the same period.  

In 2019, the median monthly mortgage payment was $1,242. In 2023, it was $2,268 — an almost 83% increase.

These factors combined have created the home affordability crisis that exists today. One in five aspiring homeowners think they’ll never be able to save enough to purchase a home. 

Other barriers to home ownership 

Aspiring homeowners cite other obstacles to being able to afford a down payment and closing costs for a home. This includes credit card debt (18%) and student loan debt (10%).

“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,” says Mark Hamrick, senior economic analyst at Bankrate. “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,”

2024 housing market predictions 

The housing market is challenging right now. Over two in five (42%) Americans say right now is a bad time to buy. So what can you expect in 2024?

Experts believe mortgage rates slowly decline throughout the year. The possibility of a recession could also place some downward pressure on rates late in the year. But with inflation still lingering, drastic drops seem unlikely.

The Federal Reserve has hinted at potential rate cuts in the coming months, says Dr. Selma Hepp, chief economist at CoreLogic. 

“This suggests that the 30-year fixed mortgage rate could end up below 6% by the end of 2024, absent any new surprises on the inflation front,” she says.

Lower mortgage rates mean lower mortgage payments, as homeowners would pay less interest throughout their loan. 

“If mortgage rates edge down this year as many expect, more Americans should find modest improvement with housing affordability,” Hamrick says. 

But a drop in interest rates could also drive sales prices higher. 

“As soon as interest rates drop, new inventory will become available, but likely at a higher price,” says Claudine O’Rourke, associate broker at Compass. O’Rourke says this will lead to more competition and make it harder for buyers to negotiate a deal.

There’s also the question of whether supply will increase to keep up with increased demand. 

“It depends on the future direction of home prices and whether the market will continue to be dogged by the thorny challenge of an insufficient supply of homes available for sale,” says Hamrick.

Are you ready to buy a house right now?

If you find a home you love right now, waiting may not make sense. Home prices aren’t likely to fall drastically in most markets anytime soon. It’s better to buy now than to wait for the perfect opportunity in the future. 

“My advice is to buy the right product at a fair price that you can afford and reach a little bit,” says David Wasserman, senior real estate advisor at Solomon Partners.

Plus, even if you purchase a home with a high mortgage rate today, that rate often isn’t set in stone. For example, you could lock in a home right now and refinance your mortgage when rates go down. 

But before you decide to buy, you must assess your financial situation and the market landscape. Here are some questions to ask yourself. 

Your finances

  • Have you saved at least a 20% down payment (plus closing costs)? 
  • How stable and sufficient is your income? Can you cover mortgage payments, insurance, taxes, and maintenance?
  • How much non-mortgage debt do you currently carry, and how long would it take to pay off?
  • Do you plan to live in this house for more than five years? You can also use a rent vs. buy calculator to determine if buying is worth it. 

Market conditions 

  • Are home prices in your area likely to continue rising, or could they fall?
  • How do projected mortgage rates and monthly payments align with your budget? Don’t stretch beyond what leaves room for other goals.
  • Is there sufficient home inventory available? 

If your finances aren’t ready or the market is too risky, it may be smart to be patient and wait. 

Steps to improve your homebuying readiness 

“With so many aspiring homeowners saying they’re not making enough money to afford a down payment, the job market has been more resilient, the economy more robust than many experts expected,” Hamrick says. He says that strength can be leveraged.

If owning makes sense someday but not today, here are some tips to save up to become a homeowner in 2024:

  • Reduce debt: Pay down credit cards, auto loans, and student loans to lower your debt-to-income ratio to qualify for better mortgage terms. Start with the highest-interest debts first.
  • Save aggressively: Beef up your down payment fund so you can make a 20% down payment without entirely draining all your savings. 
  • Hold off on major purchases: Try to pause other large purchases that aren’t urgent so more cash can flow to your down payment savings each month.
  • Boost your income: Look for ways to increase your income, whether through negotiating a raise or promotion, monetizing a hobby, or starting a side gig. Every extra bit helps.
  • Improve your credit score: A strong credit score secures the best mortgage interest rates. Pay all bills on time and correct any errors on your credit report.
  • Be patient: Don’t rush into purchasing because rates seem low or your family pressures you. The longer you can wait and improve your financial situation, the better you may be. 

The bottom line

The dream of homeownership still burns bright for most Americans. But the market is still challenging for many aspiring homebuyers. 

Staying focused on building smart financial habits can help you buy a home in 2024 — or whenever stability returns to the housing market.

Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.

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