High prices, interest rates stopping millennials’ plans to purchase home
Millennials are in peak nesting mode. We want the outdoor space many apartments lack, or the room to grow that a starter house doesn’t offer. There’s just a not-so-small problem.
The median existing home sales price of U.S. homes was $389,500 in August, according to the National Association of Realtors. That’s a 7.7% increase from August 2021. The average interest rate for 30-year fixedrate mortgages topped 6% as of Sept. 15 this year, according to Freddie Mac. Compare that with an average rate of 2.86% just one year prior — that’s a 110% increase.
“We’re seeing that those who were thinking of buying a home just aren’t interested anymore,” says Natalie Slagle, a certified financial planner and founding partner of Rochester, Minnesota-based Fyooz Financial Planning. “People aren’t as willing to make big financial moves when it feels like there’s uncertainty.”
Though you may feel stuck right now, you don’t have to be forever. Here’s what to do in the meantime.
Reevaluate your situation
In slowing down your house hunt, you’ve given yourself the gift of extra time. You can reassess what’s realistic for you. Over the next year or so, your life may change a lot, meaning your list of musthaves for a home might need a few edits.
When Jason Fletcher was looking to buy his first home in Orange County, California, in 2019, he was single. At the time, he didn’t find The One, real estate-wise, but it wasn’t long before he met his now-wife. They’re currently expecting their second child and still hoping to swap their rental for a home they own, one quite different from what Fletcher searched for three years ago. However, their search is coming up short. “I’d say right now, at least in our area, we have not seen inventory increase a whole lot,” he says. “That indicates to me that people are comfortable with the interest rates they have and they aren’t selling.”
Become an even more attractive buyer
If your budget and mortgage preapproval were so-so this time around, take the next few months to beef up your finances so you’re in a stronger position later on.
One place to start is with discretionary spending. If you can cut back, and possibly increase your income with a promotion, job or freelance work, you can add to your savings and be prepared to make a larger down payment. You may also be able to increase your overall budget for a home. Fletcher and his wife cut back on buying new clothes and are keeping their paid-off cars longer to avoid car loans. “At this point, we’re trying to make more money and get promotions,” he says.
Paying down existing debts can help, too, as that will lower your debt-toincome ratio.
A higher credit score can help you qualify for better mortgage terms, hopefully ensuring you can get as low an interest rate as possible. If you already have excellent credit, keep it there by paying your bills on time every month. Late payments can ding your credit, and you’ve already worked hard to get where you are. If your credit score is lower, on-time payments can still help you, as can limiting what other loans or credit cards you apply for in the months before you apply for a mortgage.
Adjust your interest rate expectations
Sometimes your life plans don’t line up with economic conditions, so you may not be able to wait indefinitely for interest rates to go down. In that case, you’ll have to stomach higher monthly payments, and if interest rates go lower in the future, you can refinance. You may have to make some concessions to accommodate a more expensive loan, like reducing your overall budget or widening your search over a larger area.
Phil Lawson, a real estate agent in Richmond, Virginia, notes that even now, interest rates are historically low. When he bought his first home 20 years ago, he paid 7.6%.
“This is a stupid cliche, and I’ve said it over the years,” he says. “Marry the house but date the rate.”