July 21, 2024

3 Ways Buying a Home Is Still Expensive, Even If Mortgage Rates Fall

Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.

  • Even though interest rates are falling, it can still be expensive to buy a home. 
  • Low housing inventory has made it necessary for homebuyers to put down larger down payments.
  • Higher home prices and homeowners insurance costs also impact the affordability of buying a home. 

Buyers who have been on the fence about buying a home due to high interest rates may get a break in 2024. Mortgage rates have dropped in recent months and are likely to continue going down in 2024.

But even if mortgage rates fall, buying a home could still be expensive for other reasons. With housing costs soaring due to increased demand and limited inventory, homeownership still isn’t cheap.

As friends and colleagues who are in the market to buy a home tell me often, buying a home is a stretch. That’s because interest rates aren’t everything — your mortgage payment is just one piece of the puzzle.

Heading into 2024, here are three ways that buying a home is getting more expensive, even if mortgage rates fall:

1. Larger down payments

In order to combat higher mortgage rates and a highly competitive market, home buyers have increased their down payments. According to a report by Realtor.com, buyers put down $30,434 on average in the third quarter of 2023, up 11.3% from the same time one year ago and a stunning 118% from four years ago.

The report also found the average down payment percentage hit 14.7% of the purchase price at the end of the third quarter, the highest level since Realtor.com began tracking the data in 2013. By comparison, the typical payment level before the COVID-19 pandemic began was about 11%.

Buyers are feeling the need to make higher down payments to compete in today’s housing market, which means you may need more cash than ever to get started.

2. Higher insurance costs

Homeowners insurance costs in certain areas are on the rise and aren’t expected to decrease anytime soon. For example, buying a home in a natural-disaster or severe-weather-prone state like California or Florida can be expensive not only based on home price or interest rates, but also because insurance companies keep raising their rates due to real estate values, rising construction costs, and the high price of rebuilding or replacing a home.

The average cost of homeowners insurance can increase every year — and faster in some areas than others.

Homeowners in 2024 will struggle with rising insurance premiums, a trend directly linked to climate change. In its 2024 Global Insurance Outlook, Deloitte Center for Financial Services reports that insurance providers are facing more frequent and severe weather events like wildfires, floods, and hurricanes, leading to increased claims and higher premiums.

3. Increasing home prices

As much as we’re all hoping home prices drop, that hasn’t been the case. Prices have steadily increased, and as long as housing inventory is low and the demand is high, that will continue. Despite the easing of interest rates, still-high mortgage rates and home prices with historically low housing stock can still put homeownership out of reach of many — especially for first-time buyers.

Prices rose 40% between February 2020 and August 2022, according to the latest data from the Zillow Home Value Index as cited by the Chicago Fed. In the third quarter of 2023 alone, NAR reports that home prices grew in more than 80% of U.S. metro areas.

Still planning to buy? Take your time and do your research. This is a competitive market and you will need a solid down payment and credit score. There is more to buying a home than the mortgage payment.

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