The (Unattainable) American Dream?

According to a new Bankrate report, the housing market continues to feel the effects of the COVID-19 pandemic as U.S. home prices near record highs and mortgage rates skyrocketed to their highest levels since 2000.

Bankrate surveyed U.S. adults to get a handle on how Americans are feeling about the housing market, which revealed nearly half of all Americans say it’s a bad time to buy a home, and about a third say they’ll never be able to afford their dream home.

With homes in short supply, many homeowners are continuing to hang onto their low mortgage rates. Millions of homeowners locked in record-low mortgage rates in 2020 and 2021, but today’s would-be homebuyers face limited choices and an affordability squeeze.

Key Findings:

Some 49%of U.S. adults believe now is a bad time to buy a home.

• Those in the West and Midwest (51% each) are more likely to agree than folks living in the Northeast (44%).
• Baby Boomers (54%) and Gen X (52%) are more likely to agree than their Millennial (44%) and Gen Z (41%) counterparts.
• Those making under $50,000 annually are less likely to agree (43%) than those who earn more than that.

While homebuyers agree that now is the wrong time to buy, home sales have plummeted over the past two years amid high prices and rising mortgage rates. Even though demand still outpaces supply, home prices are still high.

“We’re in this fascinating position of tremendous demand and too little inventory,” says Dave Liniger, Co-Founder and Chairman of the Board of Real Estate Brokerage at RE/MAX.

The lack of supply is being driven by a couple of factors:

• Homeowners whose mortgages are locked in at 3% aren’t eager to give up their super-cheap loans for rates near 8%.
• Builders simply aren’t constructing enough homes to meet demand.

In result, home prices are unlikely to fall in the foreseeable future. And because high mortgage rates have pushed so many buyers to the sidelines, it’s possible that, if and when rates do fall, homebuyers will rush in, triggering another frenzy.

“When interest rates do start to come down, it’ll be another boom-and-bust cycle,” said Liniger.

While this seems like an unfavorable time to shop for a home, it’s not clear that conditions will be any better in the foreseeable future. Or, as Liniger puts it, “The market we’ve got is the market we’ve got.”

An estimated 32% of U.S. adults believe they'll never be able to afford to buy their dream home.

• Women (34%) are more likely to agree than men (29%).
• Boomers (26%) are less likely to agree than those who are younger.
• Understandably, those with an annual income of less than $50,000 are more likely to agree (40 percent) than those making between $50,000 and $79,999 (28%), $80,000 and $99,999 (29%) and $100,000 or more (21%).

While definitions of “dream home” vary widely, the housing boom caused many Americans to rethink their housing priorities. Many are choosing not to move and instead to stay in their homes and renovate, often putting their equity to work by using funds from a home equity loan or home equity line of credit (HELOC). Those who did choose to move have embarked on a quest for more affordable housing, leading to outflows of people from pricey states like California and New York, and inflows into Florida, Texas, and Nevada.

Roughly 49% of Americans believe mortgage rates will remain elevated for the foreseeable future.

• Those in the Midwest (54%) and South (51%) are more likely to agree than those in the West (47%) and Northeast (44%).
• A third of Gen Z (33%) and 40% of Millennials agree, compared to 53% of Gen X and 62% of Boomers.
• Those making less than $50,000 annually are less likely to agree (42%) than those making between $50,000 and $79,999 (56%), $80,000 and $99,999 (61%) and $100,000 or more (60%).

While mortgage rates are nearly impossible to predict, housing economists agree that they won’t return to the sub-3% levels of late 2020 and early 2021. Now, mortgage rates are flirting with 8%, or even beyond, and it seems unlikely that they’ll return to the sub-5% levels that Americans began to take for granted in the years after the Great Recession.

“Average mortgage rates are now nearly three times higher than the historically low levels hit back in 2021,” said Lisa Sturtevant, Chief Economist at Bright MLS. “And there is more and more data coming out to suggest that we should expect that rates will stay higher for longer.”

Approximately 32% of Americans agree that 20% is the minimum down payment to buy a home.

• Those in the West and Northeast (both 34%) were slightly more likely to agree than Midwesterners (30%) and Southerners (31%).
• Gen Z (24%) is less likely to agree than Millennials (32%), Gen X (33%) and Baby Boomers (35%).

While many believe this, the verdict is true: a 20% down payment is ideal. It helps borrowers qualify for the best rates and the lowest fees, and it eliminates the need to pay for private mortgage insurance. But with the typical U.S. home price close to $400,000, according to the National Association of Realtors, a 20% down payment works out to around $80,000—a sum most Americans don’t have on hand.

Just 17% of U.S. adults believe renting is cheaper than owning a home, by far the lowest rate of the survey.

• Gen Z (24%) and Millennials (21%) are much more likely to agree than Gen X (14%) and boomers (13%).
• Rents soared to record levels during the pandemic, and renters have been caught in a tough spot ever since.

Buying a home with a fixed-rate mortgage means you know how much your monthly principal and interest payments will be for years to come. Over the long run, homeowners generate real benefits from this certainty — if you keep your loan for 10 or 15 years or more, your pay is likely to rise over that time, but your mortgage payment is locked in place. At that point, the monthly payment that once looked daunting can seem quite manageable.

Homeownership comes with many costs that aren’t obvious when you’re renting. You’re responsible for property taxes and you also have to pay for homeowners insurance—it's affordable in many parts of the country, but in high-hazard states like Florida and California, insurance premiums have been soaring. You’re also responsible for maintenance and repairs, which run the gamut from mowing the lawn to high-ticket items like replacing the roof or repairing the air conditioning.

Overall, even though homeownership is expensive, it’s an important way to build wealth and to create certainty around your living situation and monthly expenses.

Some 39% of U.S. adults believe a homebuyer needs excellent credit to get a mortgage.

• Those in the West (41%) and South (40%) are more likely to agree than Midwesterners (35%) and Northeasterners (36%).
• Boomers are more likely to agree (44%) than Gen X (38%), Millennials (36%) and Gen Z (34%).

It’s true that your credit score is the most important factor determining your mortgage rate and what type of loan you qualify for. The best deals go to borrowers with credit scores of 740 or higher. But that doesn’t mean borrowers with less-than-stellar credit are shut out.

Borrowers with credit scores in the 700 to 740 range—a step below excellent—still have plenty of choices. And if your credit score is in the 600s, don’t worry, most loans are readily available to borrowers in that range, too, though your interest rate will be higher. And if your credit score is below 600, look into FHA loans: They can go as low as 500, with a 10% down payment, or 580 with a 3.5% down payment.

While many Americans would love to buy a home, sky-high home prices are continuing to hold them back.

To read the full report, including more data, charts, and methodology, click here.