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It’s a tall order, but it’s doable.
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Buying a home is something a lot of people don’t get an opportunity to do until they’re a bit older. That’s because younger workers, by nature, don’t tend to earn as much as their older counterparts, and that can make buying a home difficult.
It’s therefore encouraging to see that 72% of Americans aged 25 to 34 are planning to buy a home in the next five years, according to a recent survey by Compare The Market. But is that goal realistic given the state of the real estate market today?
Today’s housing market is far from buyer-friendly
Home buyers today face a host of challenges. For one thing, home prices are still elevated on a national scale. And while home price gains have been slowing, buyers are still looking at expensive mortgage loans for one big reason — borrowing rates are up.
Mortgage rates rose sharply in 2022, and at this point, they’re still up. So between higher home prices and borrowing costs, buyers are facing major affordability issues.
Plus, housing inventory is extremely limited these days. As of the end of January, there was only a 2.9-month supply of available homes on the market, according to the National Association of Realtors. It generally takes a good 4- to 6-month supply of available listings to adequately meet buyer demand.
When housing inventory is low, it causes two distinct problems for buyers. First, it allows sellers to charge a premium knowing there’s not a lot of competition. But also, it means buyers are more likely to have to compromise on things like home features, square footage, and location. These aren’t such easy things to do when you’re talking about the place you might be living for the next five, 10, or 20 years.
Things could get better
At this point, home prices are more likely to go down than up. That’s the first bit of good news. The second bit is that in time, housing inventory is likely to increase. That should not only help with affordability, but also make it easier for buyers to find suitable homes.
As far as mortgage rates go, well, it’s hard to say what direction they’ll trend in. Rates started to dip earlier in 2023 but have more recently risen. So home buyers will need to sit tight and see how things go.
But either way, there’s a good chance that in a year or two, we’ll be looking at less-expensive mortgage rates on top of cheaper home prices across the board. And that means that people in their mid-20s to mid-30s who plan to buy a home in the next five years might indeed have a great chance at getting to do just that.
That said, younger buyers might face certain other challenges, such as earning lower salaries that make it harder to qualify for a mortgage. So those who are serious about buying a home should be budgeting carefully to carve out as much money as possible for their down payments.
It’s also important to have a solid emergency fund before diving into homeownership. There are many costs associated with owning property, and if you’re on more of a starter salary (which may be the case if you’re only in your mid-20s), you may not have much wiggle room. If you go into homeownership with some money in a savings account, that cushion could come in handy when your bills inevitably begin to mount.
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