Owning a home establishes your roots. It gives you a sense of pride, security, and belonging. 78% of Americans think home ownership is a part of the American Dream. However, people often put their dreams on hold because buying a house requires crossing several hurdles.
Here are 12 factors that prevent people from becoming homeowners.
Spiraling Prices and Lack of Supply
Home prices have spiked 47% since the start of 2020, and 85% of U.S. cities are bearing this brunt. Given that the high cost of living is already putting a financial strain on people, affordability for housing is a big issue. The demand-supply gap is another reason. There is a severe shortage of entry-level, budget-friendly homes compared to the demand from first-time homebuyers.
High Mortgage Rates
The mortgage rate depends on a combination of factors such as the bond market, Federal Reserve policies, inflation, performance of the economy, etc. The rate is expected to remain around mid-6% to 7% in 2024, with a potential to drop to high-5% by 2025 end. These rates are out of the means of most people. 65% of aspiring homebuyers are waiting for mortgage rates to go down to invest in a new home.
Cumbersome Mortgage Formalities
Despite mortgages being one of the most common home financing options in the United States, they are complex and tedious. Borrowers need to shortlist lenders, provide a comprehensive list of documents, understand different components of a mortgage, calculate the implications of the debt on their budget, etc. The time-consuming process deters many Americans from buying a home.
Not Qualifying for Mortgage
58% of Americans are apprehensive about qualifying for a mortgage. Another survey reveals that the possibility of being denied a loan kept 15% of Americans from applying. The lack of small-dollar mortgages is also a concern for families with modest incomes and good credit profiles willing to apply for a loan.
Most U.S. banks and institutions don’t issue enough small-ticket loans or deny their approval due to their lower profitability.
Existing Debts
Americans are carrying a record-high household debt of $17.3 trillion into 2024. Their existing mortgage, credit card, auto, student, and home equity revolving loans have put them in a big debt trap. They don’t want to saddle themselves further with the financial liability of buying a new home.
Poor Credit Score
Financial institutions require borrowers to have a credit score of 500-620 as one of the eligibility criteria, depending on the loan type. Lenders are more likely to reject potential home buyers with bad credit. If borrowers qualify despite their poor credit score, they may have to pay a higher interest rate or opt for less favorable loan terms.
Lack of Money for a Down Payment
A down payment is an upfront cost of up to 20% of the home price. Around 50% of aspiring homebuyers admit that they can’t afford a down payment. They don’t have enough savings or would have to draw from their retirement fund to pay for it.
Not the Right Time
Overall, there is a gloomy sentiment in the housing market at present. 76% of Americans believe it’s the worst time to buy a home due to the affordability crisis, skyrocketing home prices, and high borrowing costs. Most people are adopting a ‘wait and watch’ approach and hoping for conditions to improve.
Job and Income Instability
A survey highlights that eight in ten people expect the U.S. economy to witness a recession in 2024. 85% of them fear losing their jobs this year. A growing number of Americans are quitting their full-time career to look for freelance, gig, and side hustle opportunities for flexibility. However, these jobs could fetch low or inconsistent income.
The workforce dynamics are transforming. People are still determining if they would like to own a home before they have a stable job or income.
Uncertainty of Settling Down
Buying a home is a big emotional commitment. It ties one up with a few obligations, whether they want to live in it or rent it out. People who live a nomadic lifestyle or switch locations frequently for career moves live in uncertainty. Hence, they are not keen to settle in one place with home ownership.
Starting a Family
Traditionally, people look for a new home when ready to tie the knot or have children. They want to involve their partners in the decision. Parents want to choose a location with schools, supermarkets, medical facilities, parks, and community spaces nearby. They also put a lot of weight on safe neighborhoods. Hence, people postpone buying a house until they start a family.
Renting Over Buying Mentality
For some people, renting a home has more benefits than owning one. They can save on property taxes, repairs, and maintenance. They have more flexibility when choosing where they want to live. They can avail themselves of amenities at zero or nominal cost. They also don’t have to worry about diverting their savings towards a down payment. All they need to pay is a security deposit, which usually equals one month’s rent.