Millennials Grapple with Soaring Mortgage Rates
Millennials are particularly feeling the squeeze from rising mortgage interest rates, having missed the opportunity to lock in historically low rates during the pandemic, according to a recent report. In 2021, the average 30-year fixed mortgage rate was around 3%. Fast forward nearly two years, and that rate has more than doubled to over 7%.
“The effective mortgage rate is still below pre-COVID levels,” BofA stated in a note obtained by Markets Insider. “However, millennials are notably impacted as they missed out on the 3% mortgage rates. Consequently, millennials are spending significantly more on housing compared to boomers, who allocate more towards healthcare and entertainment.”
Since the end of 2021, millennials have seen a 20% increase in mortgage debt, according to BofA. In contrast, Gen X experienced less than a 10% rise, while Baby Boomers saw no significant increase in mortgage debt. Despite these challenges, Baby Boomers and the Silent Generation jointly hold $146 trillion in household net worth, while millennials have around $10 trillion, highlighting a substantial generational wealth gap.
Financial Struggles Amid Rising Costs
Many Americans are struggling to keep up with their finances, including housing expenses, after two years of persistent inflation. A September survey by BMO Financial Group revealed that nearly half (46%) of Americans haven’t made financial progress since inflation peaked two years ago. Among those struggling, 36% said they are not progressing in their savings or financial goals, and 66% had not established a financial plan.
Although inflation has cooled since reaching a 40-year high in June 2022, Americans continue to face increased costs for most goods and services. “U.S. consumer confidence fell more than expected in August amid still-elevated food and gas prices, softening labor market conditions, and economic uncertainty,” said Michael Gregory, BMO deputy chief economist and head of U.S. economics.
Possible Relief on the Horizon for Homeowners
Homeowners burdened by high mortgage payments might find some relief as mortgage rates, which had climbed to nearly 8% for the popular 30-year mortgage, have started to decline. Mike Fratantoni, chief economist and senior vice president of the Mortgage Bankers Association (MBA), mentioned at the MBA Annual Conference in Philadelphia that the Fed is likely to cut interest rates three times next year, with mortgage rates expected to decrease in 2024 and 2025.
Despite the progress in controlling inflation, significant work remains, as noted by Fed Chairman Jerome Powell at a recent International Monetary Fund (IMF) panel. “Gross domestic product growth in the third quarter was quite strong, but we expect growth to moderate in the coming quarters,” Powell stated. The Fed has raised interest rates 11 times since March 2022 to curb soaring inflation, keeping the short-term policy rate within a range of 5.25% to 5.5%.
For those considering taking out a mortgage amid high rates, comparing multiple options can help save money on monthly payments. Contact Credible to speak to a home loan expert and explore the best refinance rate for your financial situation.
Looking Ahead
Millennials continue to navigate the challenges of higher mortgage rates, a significant increase in debt, and financial uncertainty. As economic conditions evolve, it remains crucial for potential homeowners to stay informed and explore various options to manage their financial obligations effectively. The coming years may offer some respite as the Federal Reserve’s policies aim to stabilize the economy and reduce inflation.