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The tight housing market has Americans sticking with rentals until they can get their hands on cheaper homes and lower mortgage rates. But many are worried that continuing to funnel their paychecks into rental properties could hurt their financial futures.
A new Bank of America report published Wednesday found that 72% of prospective homebuyers are scared that rising rents could affect their present and long-term finances, and almost as many feel that they’re not making a long-term investment into their future.
The national homeownership rate is about 66% as of April 30, according to the latest data from the Federal Reserve Bank of St. Louis. About 44 million American households are renters. Prospective homebuyers are being scared away from the market by a combination of high home prices and mortgage rates, and low housing inventory.
The costs are almost incomparable: The average rent in the United States is $1,515 per month (a 0.6% year-over-year increase), while the median sale price of a home nationwide is $420,401 (a 4.8% jump from last year).
It’s no surprise then that there’s increasing pessimism about the prospect of homeownership across the country, with a record low of 40.1% of renters saying they believe they will ever own a home, according to a recent New York Federal Reserve survey.
Still, a majority see the idea of home ownership as a stable and fulfilling investment, with 81% of prospective homebuyers saying that renting is temporary and suits their current stage in life, according to the Bank of America report. More than two-thirds of prospective homebuyers said they would prefer to own their home for the “sense of permanence and emotional stability it provides, rather than the flexibility of renting.”
“Given the highly competitive homebuying market, renters are unsure whether now is the right time to buy,” said Matt Vernon, head of consumer lending at Bank of America. “That said, our research continues to show that the vast majority of prospective homebuyers overwhelmingly feel buying a home, now or in the future, is the best decision for them in the long run.”
It’s a difficult situation for those hoping to move into more permanent digs. Many are hoping to wait until mortgage rates come down — although they may have to keep waiting, as the Federal Reserve Bank has indicated higher-for-longer interest rates, which will keep mortgages elevated for at least a little longer. The average 30-year fixed mortgage rate has stayed above 7% for more than a month.
But a drop in mortgage rates is expected to send demand shooting up — and with it, home prices.
Three-quarters of prospective homebuyers surveyed by Bank of America said they are planning to buy a home within the next five years, with a majority saying that owning a home is still the best long-term decision for them.