Potential Homebuyers Feeling Strained

According to the most recent BMO Real Financial Progress Index, current interest rates are preventing the majority of prospective homebuyers from acquiring a home, with nearly three-quarters (71%) waiting for rate reduction before entering the market—up from 64% last year.

BMO’s survey highlights Americans’ current views on homeownership and shows a desire for greater affordability, from cost of living and inflation to growing insurance costs and climate-related worries. Among those who intend to buy a home, nearly one-third (30%) intend to use money from their 401(k) retirement plan to help fund the cost.

According to BMO Economics, two years after the Federal Reserve began rising interest rates, which resulted in a rise in mortgage rates, and amid elevated housing prices and limited inventory, Americans will most likely have to wait another summer for potential respite.

“In light of persistent strength in the U.S. economy, as well as stubborn underlying inflation, the market has been pushing its expectation for Fed rate cuts into the autumn,” said Michael Gregory, Deputy Chief Economist at BMO. “Looking ahead to 2025, we expect the Fed to stick to a gradual rate cut pattern.”

American homebuyers revealed their sentiment, revealing that:

  • Buying a home still part of the “American Dream”: Most (67%) say owning a home is one of their biggest aspirations in life. Most Millennials and Gen Z (73% on both counts) report it is one of their most coveted goals.
  • Most aspiring homeowners remain distant from reaching homeownership milestone: 73% of aspiring homeowners say the goal of owning their own home seems unattainable.
  • More younger Americans pulling from 401(k): 30% of aspiring homeowners say they plan to use their 401(k)-retirement plan toward their home purchase. Millennials (31%) and Gen Z (34%) are more likely to say they will pull out money early compared to Gen X (25%) and Baby Boomers (16%).
  • Home insurance costs affecting purchasing power: 43% say rising home insurance costs may impact their ability to keep or buy a home. Gen Z feel most impacted by these costs (60%), followed by Millennials (55%).
  • Climate-related factors impacting where Americans live: 41% say environmental deterrents such as water availability, storms, flooding, heatwaves, and wildfires will impact where they choose to live in the next five years. Gen Z (58%) are more likely to report this will impact where they live followed by Millennials (53%).
  • Cost of living and housing a concern: 60% say their concerns about cost of living have increased over the past three months, while 68% say housing costs are causing financial anxiety.

“It’s clear that Americans are feeling the strain of elevated rates, and many are uncertain about how to go about navigating the ever-evolving housing market,” said Thomas Parrish, Head of U.S. Retail Lending at BMO. “It’s critical, especially during periods of high rates, for customers to engage a mortgage advisor who can guide potential buyers and sellers through the homebuying journey, determine suitable budgets, and dispel common misconceptions about the pathways to homeownership—even if it currently feels out of reach.”

Housing Costs on Par with Credit Card Debt as a Barrier to Financial Progress with Most Lacking a Financial Plan

“We believe in sustainable homeownership, underscored by a thorough understanding of the associated expenses and thoughtful budgeting practices to keep people on track to reach their goals and achieve real financial progress,” Parrish said.

When it comes to hindering Americans from achieving genuine financial progress, housing prices are equally as significant as credit card debt—30% on both counts. Furthermore, some 81% report that their total financial status creates financial distress. Overall, 45% of Americans feel they are making meaningful financial improvement, which is slightly higher than this time last year (42%).

Despite the fact that the majority of people establish financial objectives for themselves (74%), many lack a road map to get there, with only 32% having a documented financial plan and 40% creating a monthly household budget.

“Creating a budget is not just about managing expenses; it’s about taking control of your financial future,” said Paul Dilda, Head of Consumer Strategy at BMO. “It provides the blueprint for achieving your goals, whether it’s buying a home, saving for retirement, or paying off debt. With a clear plan in place, you can make informed decisions, prioritize your spending, and ultimately, make real financial progress.”

To read the full report, including more data, charts, and methodology, click here.

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Demetria C. Lester

Demetria C. Lester is a reporter for MortgagePoint (formerly DS News and MReport) with more than eight years of writing and editing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is a jazz aficionado, Harry Potter fanatic, and likes to read. She can be reached at demetria.lester@thefivestar.com.
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