Saving To Become a Homeowner? Here's What You Should Know - Home & Texture
Homeownership Soaring House Prices

Saving To Become a Homeowner? Here's What You Should Know

The path to homeownership isn't always easy to navigate. Here's what to consider on your journey toward owning a home.

January 17, 2024 at 6:31 PM PST

Becoming a homeowner is still a facet of the American Dream that most young adults or blossoming families strive to reach by a particular stage in life. For many Americans, however, the milestone of signing off on your first home is more unattainable than ever. If you’re pinching pennies left and right each year, but somehow, the down payment on a property in your desired neighborhood is always out of reach, even if just slightly, you’re not the only one. An analysis of mortgage payments compared to rents by The Economist calculated that for 89% of Americans, renting a two-bedroom place is cheaper than buying a similar property. That’s a hefty figure, especially when it was 16% as little as three years ago.

Photo Credit: Michael Tuszynski

What does the data say?

While the economy previously favored homeowners from 2011 to 2020, when the average monthly mortgage payment on a home was 12% less than rent, it’s not likely that homebuying will produce such an advantage again anytime soon. Why? House prices have increased by around 40% since 2020, while mortgage rates climbed from 3.1% to 7.3%. Mortgage payments have also more than doubled since the same year, yet rents rose by merely 20%.

It’s not to say that homebuying is soon to shift to an archaic practice forever left behind in the 2010s, but that it’s not going to get any easier on your wallet unless a few things happen in the market: house prices drop by one-third, or average mortgage rates decrease to 3.2% or less. Furthermore, in an unwelcome turn of events, rental costs could rise by at least 50%, which would essentially revert the economy to the decades when renting costs more in the long haul than purchasing. Unfortunately, experts predict none of these outcomes will happen within the coming year.

Navigating the Housing Market

Banking firm Goldman Sachs forecasts that housing prices will skyrocket by 1.9% in 2024 and 2.8% in 2025. Meanwhile, mortgage rates will enter a slow decline of 7.1% by the end of 2024 and 6.6% by the end of 2025. Nonetheless, with new apartments popping up throughout the country, renters have almost unlimited choices, making for weak demand and steady prices—allowing renting to remain the most affordable option.

Of course, new homebuyers could always pick an area where houses have always been relatively cheap. Despite this strategy, the mortgage rates offered to borrowers will still be much more expensive than the ones of current owners. So ultimately, whether buying or renting is right for you is a personal decision. Regardless of market shifts, with a strict budget and financial plan, you can still meet your goals and get the keys to your forever home.


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