The most recent iteration of the BMO Real Financial Progress Index [1] revealed a number of new information including that over 65% of Americans are waiting on mortgage rates to drop before buying a home in today’s market.
Looking further into BMO’s data, only 6% of Americans who plan to purchase a home in the near future plan to do so this summer, and 56% o millennials and Gen Zers feel that buying a home is more out of reach compared to their parents’ generation.
According to BMO, compared to a year ago, homebuyers are dealing with much higher costs of ownership due to a combination of elevated mortgage rates, persistently high home prices and limited inventory, leaving housing affordability near the most challenging levels in more than 30 years as a result of more that a year of straight rate hikes by the Federal Reserves Federal Open Market Committee.
BMO's survey also found Americans' perceptions of the economy has further affected their homebuying plans:
- Most are deferring plans to buy: 65% of those who do not own property say they are holding off buying a home due to the state of the economy with Asian Americans (68%) and Hispanics (70%) the most likely to make this decision. Forty-three percent reported they are no longer sure if or when they will buy.
- Majority of Americans not looking to buy in 2023: 6% of Americans who say they plan to buy a home soon will this summer and only 4% this fall. Thirty-two percent say they plan to enter the market in 2024 or later if mortgage rates decline.
- Americans pause on refinancing: Among those planning to refinance their home, 81% say they are waiting until rates drop.
- Millennials and Gen Z feel the homebuying stress: More than half (56%) of those generations say they feel homebuying is more out of reach for them compared to when their parents were the same age.
- Financial anxiety high overall: Housing costs (68%) remain among the leading sources of financial anxiety for Americans. Other top sources of financial anxiety include concerns about their overall financial situation (82%) and fears of unknown expenses (83%).
"Homeownership has traditionally been one of the best ways to secure long-term financial gains, build equity and achieve real financial progress," said Thomas Parrish [2], Head of U.S. Retail Lending Product Management at BMO. "It's crucial, especially in higher-rate environments, for Americans to talk to a mortgage advisor who can help prepare buyers for the homebuying process, work to determine how much a person can afford and clear up the misconceptions about the many paths to homeownership that exist. At BMO, our goal is all about sustainable homeownership, so having a greater understanding of all the expenses that come along with owning and seriously thinking about your budget is integral to long term success."
The survey also highlights different financing strategies Americans intend to use for their home purchases:
- Loans from financial institutions: 68% of Americans plan on using loans from their financial institution and/or lines of credit to help finance their home purchase.
- Personal savings: 46% of Americans plan on using some of their personal savings to help pay for their home purchase, such as a down payment.
- Support from family or friends: 23% of Americans are expecting help including financial gifts and/or loans from family or friends.
"Most Americans understand how critical it is to establish a financial plan and our survey found three in four have set personal goals around money," said Paul Dilda [3], Head of U.S. Consumer Strategy at BMO. "Unfortunately, only 32% of Americans said they were meeting with their banker or financial advisor to help reach those goals. Regularly doing so will help ensure a secure plan and is imperative to reaching bigger financial aspirations, such as buying a home."
Click here [1] to view the report in its entirety.