Home ownership. The American dream. Two-thirds of adults in the United States own a home, but ownership skews toward people who are older. Eighty-one percent of people ages 70 to 75 own a home. Many of these older Americans own them outright and have built equity in those homes over the years. Sometimes, the value of their homes funds their retirement. However, buying a house today and gaining that equity is as hard as it has been in recent memory.
24/7 Wall St. Key Points:
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Home ownership rates are at a multi-decade low.
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Among the reasons are high interest rates and an unusually low supply.
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According to the National Realtors Association, home sales last year fell to their lowest level since 1995. Sales of previously owned houses dropped to 4.06 million. And the price of homes continues to rise and reached a median price of $405,7000 in 2024. The St. Louis Federal Reserve put the price in 1995 at $134,000.
Two things have put homeownership out of the reach of many Americans. One is mortgage rates, which recently topped 7% for 30-year-fixed mortgages. When mortgage rates were about 3% in 2022, the monthly payment on a $450,000 mortgage was $1,925. When mortgage rates topped 7%, that payment moved to $2,923.
Additionally, people with 3% mortgages often don’t want to sell them. All they face is higher rates if they buy a new home to replace it. This financial reality has created a pool of people who will stay where they live because low monthly payments mean housing payments take up a smaller part of their incomes.
Finally, fewer new homes are being built. Why should contractors build homes that mortgage rates make too expensive?
What will improve the situation? Maybe the Fed will continue to reduce rates. A lower Fed rate tends to bring down mortgages. However, the Fed continues to worry about inflation, particularly as the economy adds jobs at a rapid clip and unemployment stays around 4%. And there is a chance that tariffs will lower supplies of many goods and services and that will fuel inflation more.
If there has been a worse time to buy a home, it was decades ago. And the situation is not getting any better.
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