Personal Capital’s new survey has found the rising price of homes is more worrisome than a pending recession to many Americans. Home prices are up 14% year-over-year in August, and one-in-four people say they’ve decided to delay purchasing a home indefinitely. Gen Z is most likely to delay home ownership. The study found more than 75% of Americans predict a recession within two years, although interest rates were the top homebuying concern among respondents.
Interest rates are at their highest levels since 2008 (5.89%) and double what they were last year. This results in mortgage payments several hundred dollars more than for the same loan a year ago.
"There are few ways to circumvent the impact of higher interest rates on your mortgage bill, but one option is to put down an even bigger down payment than you were planning," according to JJ Lester, Certified Financial Planner and a Real Estate Specialist at Personal Capital. "As part of this process, consider your other investments and cash reserves. There are several strategies to build long-term wealth. If buying a home means you won't be able to build your emergency savings or will have to pause contributions to your 401(k), you might want to consider putting your plans on hold."
While Gen Z is hesitant to enter the housing market, Millennials are confident in their ability to buy a home. Only 18% of Millennials said that buying a home is unattainable, compared to 22% of Gen Z (22%).
Additionally, three in four Americans see homeownership as part of building wealth. However it no longer seems to be viewed as the ultimate goal in financial prosperity, as 43% of respondents said it was "one of several ways to build wealth."
While there is optimism, there is still a portion of Millennials who think home ownership is out of reach, as a survey of 1,000 millennials said they are looking for smart solutions to achieve their home ownership dreams.
The average purchase mortgage request has shrunk by 10% since March, —to $413,500— as demand has picked up for FHA, VA, and USDA purchase loans favored by many entry-level buyers. Co-Buying has also gained popularity in the past few years, but with housing prices at an all-time high, and a recession looming, the profile of today's average homebuyer has drastically changed.
A recent Zillow survey found that half of new homebuyers said the process "left them in tears," with Gen Zers and Millennials "far more likely to cry at least once during their home-buying journey. According to Pairadime's findings, 36% would be willing to surrender their independence and move home to save money for their dream home. And those who did buy a home with an unmarried romantic partner and then broke up, realized they had no legal recourse and went through a "Millennial Divorce."