The Local Source for News and Information Since 1980
Achieving the American dream of homeownership has never been more challenging. The high cost of homes plus frustratingly high mortgage rates, added to the increasing costs of ownership of property taxes and homeowners’ insurance, has created an unsurmountable hurdle for many first-time home buyers. “Affordable Housing” is not really affordable, whether buying or renting.
According to a Simon-Kucher study for USA Today of 5,000 Gen Z, Millennials, Gen X and Baby Boomers, “66% saw homeownership as central to the American Dream.” Unfortunately for many, this dream will not come true, at least for now. And there is data to support this.
A 1975 report from the Pew Research Center said a typical home costs 2.4 times what an under age 40 household earned annually. That number increased to 2.9 times in 2019 and jumped to 3.5 times in 2025.
Considering this, it took 44 years for the price to annual earnings percentage to increase 20% (1975-2019). It took only 5 years for that number to increase an additional 20% (2019-2025). Which was a period of historically low mortgage rates.
Low rates drove the median price of a home in the US from $269,000 to $350,000 during this period, a 30% increase. While at the same time, median income increased only 9%, from $92,700 to $100,900. Bidding wars were not uncommon as buyers pushed sale prices beyond the listing price. But today’s real estate market is very different.
Americans still have a desire to achieve homeownership. According to the Simon-Kucher study, 66% still believe in the American dream of homeownership. The challenge for first time buyers is navigating how to achieve it under current housing and lending conditions.
In 2005, 40% of 25 to 34-year-olds owned their own homes. This number dropped to 29% in 2024 and is probably lower today.
In 2024, 20% of this age group lived with parents or other family members. It is estimated that it could be closer to 25% today. This increased from 12% in 2005. This leaves the remaining 60% of this age group in some kind of rental situation.
As mortgage payments have risen, so has monthly rent. A shortage of housing units of all types has allowed landlords to increase rents to whatever the market will bear. Larger families find it extremely challenging to find rentals with enough bedrooms for their family.
So, what can a first-time homebuyer do if they really want to own their own home and cannot afford to pay cash for it?
There are 5 components in qualifying for a mortgage. Cash, Credit, Stability, Income and Collateral.
CASH refers to the amount a borrower has in verifiable funds available for the purchase. If eligible, the USDA program offers 100% financing and allows the seller to pay some, if not all the closing costs. Effectively allowing someone to buy a home with very little if any money on hand.
CREDIT is reflected in your credit score. The higher your credit score the lower your interest rate. If you have lower credit scores, below 660, the loan program you are eligible for could be limited. 640-660 is a minimum score needed for most mortgage programs. If your score is below this, be prepared to potentially pay a higher interest rate.
STABILITY refers to the reliability of your income. 2 years of stable employment with limited job changes is the norm. Many programs will allow you to substitute higher education for job history. A good example is a schoolteacher who graduated college and is now teaching, or similar profession where only 2-3 months are required.
INCOME refers to the percentage of monthly gross income that is going to debt service. A general rule is that 43% of your monthly gross income can go toward total revolving and installment payments with no more than 30% going toward proposed mortgage payment.
COLLATERAL refers to determining whether the home you are purchasing is worth what you are paying for it. This can only be determined by a current appraisal, less than 120 days old. Appraisers get a copy of the contract showing the price as agreed to by the buyer and the seller, so value is established. The appraisal is required by the lender to confirm that this agreed upon value, or sale price, is justified by similar home sales in the area.
Houses are selling at or below asking price and sellers are making concessions. Mortgage rates will remain at current levels with a real possibility they may go up. For those seeking to change your current housing situation, do not wait for housing costs, monthly rents, and interest rates to come down. They are going to remain this way into the foreseeable future. If you are interested in starting the homeownership journey, reach out to me and we can begin the process.
