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Young Americans feel the FOMO (fear of missing out) as they eye homeownership in a market where steeper mortgage rates are becoming the norm. For Gen Zers weary of the relentless rental cycle, the appeal of owning real estate outweighs the financial obstacles. Owning a home not only displays financial well-being, but offers young Americans stability, and is a financial asset they can improve and enjoy for years.
As mortgage rates shift, American homebuyers face whether they’re willing to pay a more than 4% mortgage rate. Surprisingly, over 38% of young Americans are.
A recent survey conducted by GOBankingRates on over 1,000 Americans aged 18 and older, found that over a third of Americans 18-25 are willing to pay a 4-6% mortgage rate. Most Americans enjoy lower mortgage rates ranging from 2-4% (38%), but Gen Z’s willingness to accept high rates underscores their determination to break into homeownership despite financial challenges.
Here’s a look at just how much Americans are spending on mortgage rates, why they are willing to pay so much and how to secure a lower interest rate.
Mortgage Rates: What Gen Z and Boomers Are Willing To Pay
The GoBankingRates survey found that the age difference between those willing to pay a 2-4% mortgage tax and a 4-8% income tax varies significantly.
Only 28% of respondents between the ages of 18 and 24 are willing to pay a 2-4% mortgage rate. A significant portion of the same age group is willing to stretch their budgets further as 38% are prepared to embrace rates of 4-6% and 23% are undeterred by even higher rates ranging from 6-8%.
Astonishingly, a small, yet noteworthy, 5% of respondents aged 18-24 are willing to take on interest rates from 8-10%, with an additional 5% open to rates surpassing 10%.
On the other hand, older generations exhibit a more conservative stance when it comes to mortgage rates. The majority of those over 65 (59%) express reluctance toward rates exceeding 2-4% on their next homes. Further, a mere 9% of survey respondents are willing to entertain rates ranging from 6-8% interest rate, with none willing to take on an interest rate above 8%.
Why Are Gen Zers Willing To Pay a Higher Mortgage Rate?
Are Young Americans merely unaware of what constitutes a “high” interest rate, or are other factors motivating their willingness to settle for high interest rates?
They Feel They Have No Other Choice
Gen Z sees the real estate market for what it is, volatile, competitive and dynamic. In their eyes, the best course of action is to seize the opportunity, even if that means compromising on lower interest rates.
“Gen Z is more ‘willing’ to pay higher interest rates simply because that’s what’s available for them,” said Seamus Nally, CEO of TurboTenant. “It’s no secret that the housing market has been high these past few years, so the younger generations looking to buy their first home haven’t had a lot of options in terms of low-interest rates and inexpensive properties.”
They See It as a Strategic Investment
Young Americans are more financially savvy than you might give them credit for. They understand that real estate isn’t solely about timing the market but about time spent in the market. Their goal is to maximize wealth-building opportunities over the long term.
“They perceive homeownership not just as a milestone but as a strategic investment, one that, despite higher upfront costs, promises long-term benefits,” said Matt Dunbar, SVP of the Southeast region at Churchill Mortgage. “This outlook is shaped by their firsthand experiences with escalating rents and competitive housing markets and a keen awareness of the potential for property to serve as a stable asset in a fluctuating economic landscape.”
They Have Lived Through Economic Instability
Gen Z’s surprising willingness to accept higher interest rates and brave a tumultuous real estate market at a young age stems from their unique experiences navigating economic instability.
“Gen Z’s readiness to navigate these waters with eyes wide open to the risks and rewards reflects a maturity that sets them apart,” said Dunbar. “This generation’s approach to the challenge of higher interest rates is grounded in a reality of economic instability. They have not lived through a housing market crash as active participants but have learned from the aftermath of such events, appreciating the value of real estate as part of a diversified investment strategy.”
Strategies for Securing a Lower Mortgage Rate
For young Americans ready for homeownership, or considering a move, there are several strategic steps you can take to optimize your interest rate.
- Boost your credit score
- Increase your down payment
- Shop around for lenders and compare rates and terms
- Consider a rate lock if you’re presented with a favorable rate
- Take advantage of government-backed loans
- Prioritize disciplined saving and investing
“These actions not only position them to secure more favorable loan terms but also reflect a broader commitment to financial health and resilience,” said Dunbar. “These strategies are not just about navigating the mortgage market; they are about embracing a holistic approach to financial planning.”
More From GOBankingRates
Methodology: GOBankingRates surveyed 1,039 Americans aged 18 and older from across the country between November 9 and November 13, 2023, asking nineteen different questions: (1) How much do you plan to spend on flights/hotels this holiday season?; (2) How much did you spend on flights/hotels last holiday season?; (3) Are you taking any of the following steps to save money on travel?; (4) How much do you plan to spend on holiday shopping?; (5) How much did you spend on holiday shopping last year?; (6) How would you compare your overall financial situation this holiday season to last holiday season?; (7) How much do you plan to donate this holiday season?; (8) How much credit card debt do you have right now?; (9) How much credit card debt have you added in the past six months?; (10) What is the minimum salary that would allow you to live comfortably in 2024?; (11) How concerned are you about layoffs?; (12) Do you live paycheck to paycheck?; (13) What do you believe is the likelihood of a recession in the next year?; (14) How much do you plan to spend on your next house?; (15) What is the highest mortgage rate you would be willing to pay for your next house?; (16) How much do you think mortgage rates will fall over the next year?; (17) Have you relocated to a different state in the past two years to find more affordable housing?; (18) Which of these states would you consider relocating to for more affordable housing?; and (19) What percent of your take home (after taxes) pay do you spend on your mortgage (or rent)?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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