After just a few months, Chris Swanson is tired of searching for houses in what he describes as a "disastrous" market for first-time buyers like himself.
Despite having a stable job and paying off his student loans, it feels like he's missed out on the opportunity for low interest rates, and homes are now much more expensive. Finding a property that meets his needs and budget is already challenging, but there's also pressure to act quickly. "I'm in a difficult position," said Swanson, a marketing professional from Mentor, Ohio.
Homeownership, which is a major source of wealth for most Americans, is becoming increasingly unattainable for many people. However, millennials are feeling the impact the most, as they are buying homes at a slower pace compared to previous generations. In fact, baby boomers now represent the largest share of home buyers, a position that millennials held since 2014, according to research by the National Association of Realtors (NAR).
"Boomers have the upper hand," said Jessica Lautz, NAR's deputy chief economist, because they have accumulated home equity and can make cash payments. "Unfortunately, this has sidelined many millennials."
Those born between 1981 and 1996 are often referred to as the "unluckiest generation." Since entering the workforce, they have experienced the slowest economic growth compared to any other age group. Additionally, they have been burdened by student debt and childcare expenses, according to Lautz.
Rising interest rates and consistently high asking prices have further diminished their purchasing power. Federal Reserve data shows that the median price of a U.S. home sold for $416,100 in the second quarter of 2023, a 26 percent increase since early 2020. Median sales prices were even higher in the Northeast ($789,600) and the West ($547,900).
Meanwhile, the average 30-year fixed-rate mortgage is now hovering around 7 percent, nearly three times the 2.6 percent recorded in early 2021.
Consequently, first-time home buyers are getting older, with a median age of 36, according to Lautz. This is the oldest median age since NAR began tracking the data in 1981, when it was 29. As the age has increased, the percentage of first-time home buyers has reached "historic lows."
The high interest rates are “a real burden on young people who don’t have the high salaries of older individuals like me,” said Joe Gyourko, 67, a professor of real estate at the University of Pennsylvania Wharton School. “You can’t get around it, and you’ve got to make a decision: Do I value the house enough?”
‘Commit to the house, explore the rate’
A self-described economic Luddite and wary of debt, Swanson finds himself “completely lost” in the homebuying process. He’s taking in all the advice pouring in from real estate professionals, friends, and colleagues, but was put off by one line making the rounds:
Commit to the house, explore the rate.
Meaning: Buy now, refinance later.
“I don’t want to have someone … pushing me to make a decision I’m not 100 percent comfortable with to begin with,” he said.
The “Explore the rate” mantra has bounced around real estate circles since last spring when the Federal Reserve was well into its most aggressive rate-hike campaign in decades to crush inflation.
The line was meant to “give comfort to home buyers that this may not last forever,” said Anne Stewart, a real estate agent in Portland. Yet in August 2022, she posted a TikTok pushing back against the advice. The phrase was being abused, she told The Post, “because it didn’t really give a big enough picture for people to understand” the complexities of the housing market.
Not only is it uncertain when — and by how much — mortgage rates will drop, but buyers should also understand that refinancing comes with hefty costs, she said. If rates drop, homeowners would need to calculate whether refinancing would pay off. Though the cost depends on the specific loan, the average home refi runs about $5,000 and can take more than a year to pay for itself.
Stewart offers a different message: Accept that interest rates are high and plan accordingly.
Exploring the rate isn’t crazy advice, but it’s risky, said Gyourko, the Wharton professor. It’s sensible when buying a home may be the best option for people who want to start families and need more square footage than an apartment typically provides, he said. It also might apply if the homebuyer really loves the house.
In either case, he said, “be prepared to commit to the rate.”
“There is no law in economics that says rates will fall any time soon,” Gyourko said. “The history of rates says they go up and they go down. But how often and for how long? That’s a different matter.”
The unpredictability underscores the dilemma for first-time homebuyers — especially millennials, who supercharged the housing market in the thick of the pandemic when they were flush with cash, working remotely, and drawn in by relatively cheap mortgages.
“It’s odd because we’re dealing with high interest rates — and prices are still, in most cases, climbing,” Stewart said. “So it’s treachery for first-time homebuyers when they look at their payments.”
year in rural Leroy Township, Ohio, on July 23. (Dustin Franz for The Washington Post)
Chelsea Jones, 34, has been looking for a house in Virginia Beach for the past seven months, a process she described as a “roller coaster.” She and her partner had hoped to find something in the $350,000 range, but most of their options were in less-than-desirable condition and needed repairs. Of the properties she liked, she was either outbid or it was sold before she could act.
Interest rates are also on Jones’s mind: She’s constantly going back and forth on whether she should buy now or wait for rates to drop.
“We can’t predict the future,” she said. “It’s obviously a huge decision and it’s kind of scary because so much is unknown.”
She doesn’t want to end up with a mortgage that makes her “house poor” because she still has student loans to pay off. But reaching that milestone holds special significance for Jones; neither her parents nor grandparents owned homes.
Since the Great Recession, 30-year-fixed mortgages have generally averaged significantly below 5 percent — much cheaper than the 6 to 8 percent range observed in the two decades prior, and well below their peak above 18 percent in 1981.
Stewart, the real estate agent, mentioned that in recent years, rates may have been kept excessively low for an extended period, and the sudden increase has surprised first-time buyers. She advised against trying to time a purchase based on the expectation that rates will decrease because “if those interest rates dropped to [the 5 percent range] right now, we would witness this market truly take off with substantial appreciation.”
On his part, Gyourko cautioned against hastily entering homeownership with the primary objective of wealth accumulation. Although a frequently cited statistic from the Federal Reserve that a homeowner’s net worth is 40 times greater than that of a renter is accurate, Gyourko stated that the disparity does not necessarily result from homeownership itself. Instead, the difference is more influenced by the characteristics of the individuals within each group.
The “homeowner” category tends to include individuals who are economically productive, have saved adequately for a down payment, or have accumulated significant wealth as they approach retirement, Gyourko explained. This is in contrast to a young renter who may not have achieved those milestones.
“What you should really compare is a 28-year-old homeowner and a 28-year-old renter,” he suggested. The gap would be much narrower.
Jared Busker, 32, shared that he was prepared to purchase a house in Reno, Nev., in 2019, but he and his partner withdrew at the last minute because it wasn’t a perfect match.
“I regret not buying it,” he admitted, considering today’s interest rates and housing prices. There is a “definite fear that we made a poor decision for our long-term financial future.”
However, opting out of the deal allowed him to travel around the country. He and his partner now lead a nomadic lifestyle, staying in Airbnbs and housesitting, while also using their travels to explore places where they could potentially buy a home and settle down.
So far, he has not found the right location. Affordability is an issue everywhere he has visited and liked — from Taos, N.M., to Asheville, N.C.
Therefore, he continues to observe and wait.