In recent years, the dream of owning a home—long considered a cornerstone of the American Dream—has become increasingly challenging. The cost of homeownership has been consistently rising, driven by a combination of rising home prices and rising interest rates. These two factors have created a much more challenging environment for prospective homebuyers, particularly affecting younger generations and first-time buyers.
First, home prices have seen significant appreciation, which is largely fueled by high demand and limited supply in many markets. Median home prices have risen at a pace far exceeding the growth of average household incomes. This disparity has widened the affordability gap, making it more difficult for individuals and families to save for down payments and qualify for mortgages.
At the same time, interest rates have gone up significantly, adding another obstacle to the home buying equation. While current rates have remained “relatively” low from a historical perspective, recent rates are still much higher than they were even a few years ago. Higher interest rates directly impact the monthly mortgage payments, reducing the purchasing power and increasing the borrowing cost for potential buyers. As a result, many are finding it extremely difficult or even impossible to afford homes that were once within reach.
This is especially true for younger generations, including Millennials and Gen Z, who are often still paying off student loan debt and dealing with relatively stagnant wage growth. One challenge for first-time homebuyers is that they struggle to accumulate the necessary savings for the initial down payment, particularly in competitive markets where homes are quickly snatched up, often above the asking price.
As the cost of homeownership continues to rise, the once attainable “American Dream” is becoming more elusive for many. Efforts to address these challenges could involve policy changes at the local, state, and federal level. Or by broader economic shifts aimed at making homeownership more accessible and sustainable for future generations. This topic has been discussed at length during the debates and on other platforms by all presidential candidates including Kamala Harris, Donald Trump, and Joe Biden.
For prospective homebuyers, staying informed and utilizing available resources, such as the home affordability and/or mortgage calculators here on Smart Savings Lab, is essential. These tools offer personalized insights and calculations, helping buyers make educated decisions regarding homeownership.