BAM Key Details: 

  • A new Realtor.com report shows homebuyers are still holding onto the dream of homeownership despite affordability challenges. 
  • Younger generations (millennials and Gen Z) are more optimistic about buying a home within the next year or five years—and more likely to say now is a good time to buy. 

According to a new Realtor.com report, homebuyers in the U.S. still like their odds of becoming homeowners, despite the affordability challenges created by high mortgage rates, rising home prices, and low inventory. 

In fact, 40% of potential homebuyers would consider a home purchase feasible if rates were to drop below 6%. Another 32% would jump in if rates fell below 5%. 

If you caught last week’s episode of the Knowledge Brokers Podcast, you heard HousingWire’s Lead Analyst Logan Mohtashami’s take on predictions of 5% mortgage rates in 2024. In a nutshell, it could happen—if specific conditions are met this year:

  • Softening in the labor market and inflation rates closer to the Fed’s target
  • The Fed pivoting, which would cause a drop in the 10-year Treasury yield (below 3.21)
  • A smaller spread between the 10-year and the average 30-year fixed mortgage rate

That said, according to its updated forecast, Fannie Mae economists expect rates to fall below 6% in the fourth quarter of 2024. 

The current market is very different from where it was before the pandemic, but many Americans still have a positive outlook towards achieving the dream of buying a home. This optimistic lens may shape the way younger shoppers in particular view mortgage rates. Although mortgage rates are up from a year ago, they have declined more than a percentage point from their recent peak. While some home shoppers and sellers are likely holding out for even lower rates, the improvement in affordability as rates fall has already ushered in an uptick in listings and contract signings.

Danielle Hale

Realtor.com Chief Economist

Realtor-dot-com-How-low-would-rates-need-to-be-chart

Source: Realtor.com

Judging by survey results, younger generations (millennials and Gen Z) are more bullish on their prospects for becoming homeowners in the near future, in spite of mortgage rates hovering above 7%. In fact, close to half (47%) of millennial respondents and more than one-third (37%) of Gen Z respondents indicated they would still buy a home if rates were north of 8%. 

So, it’s hardly surprising that more than half of millennials (55%) and two-fifths (40%) of Gen Zers say now is a good time to buy a home. 

Meanwhile, only 32% of Gen X and a paltry 17% of boomers share their optimism. To be fair, though, many Gen X and boomers already own a home. And homeowner tenure is on the rise. 

Realtor-dot-com-Is-now-a-good-time-to-buy-charts

Source: Realtor.com

Despite high mortgage rates, rising home prices, and increased down payment trends driving up the cost of buying a home, younger potential homebuyers are liking their chances of becoming homeowners in the near(-ish) future. 

Over two-fifths (43%) of millennial respondents say they’ll be able to purchase a home in the next 12 months, while another 32% are optimistic about buying in the next five years. 

Nearly half (45%) of the Gen Z respondents intend to buy a home in the next five years. 

Meanwhile, older generations (Gen X and boomers) are more likely to already own a home—most likely with a lower mortgage rate locked in—so fewer of them are optimistic about buying in the next 12 to 60 months. 

Realtor-dot-com-When-affordable-to-buy-By-generation-chart

Source: Realtor.com

Even small improvements in mortgage rates can make a big difference in monthly housing payments. 

So, while Realtor.com’s 2024 housing market forecast does not predict rates below 6.5% this year, a drop of 0.5% in the mortgage rate—from 7.0% to 6.5%—would result in a monthly savings of $120 on the typical home for sale, adding up to $1,400 in annual savings and $43,000 saved over the life of a 30-year mortgage. 

A drop of two percentage points, from 7.0% to 5.0%, would more than double the monthly savings to $475, assuming a 10% down payment on a median-priced home ($410,000). 

That improvement would add up to a savings of $5,700 per year and about $170,000 over the life of a 30-year mortgage. 

As of today (February 23, 2024), the daily average for the 30-year fixed sits at 7.16%.

Realtor-dot-com-Monthly-housing-payment-before-tax-and-ins-on-410K-home-chart

Source: Realtor.com

Over the last year the real estate market has made it feel less than possible for Americans to achieve the dream of owning a home. Given the reality of our current environment we are seeing an inspiring level of optimism shine through, indicating that not only is the dream alive, it’s something that the American people are still working towards, and believe they can achieve.

Mickey Neuberger

CMO, Realtor.com®