Seven-tenths of aspiring homeowners are waiting for the Fed’s cue, says BMO

Seven-tenths of aspiring homeowners are waiting for the Fed’s cue, says BMO
Poll of US adults finds nearly a third dipping into 401(k) retirement plans as cost-of-living concerns and other stressors pile up.
APR 30, 2024

Aspiring homeowners across the US are postponing their dreams of homeownership in light of persistently high interest rates and escalating housing prices.

According to the latest findings from the BMO Real Financial Progress Index, 71 percent of prospective buyers are holding off on purchases, waiting for an anticipated drop in rates. That’s a marked increase from 64 percent last year.

Nearly one-third of these individuals are considering withdrawing funds from their 401(k) retirement plans to finance home purchases, reflecting the challenging economic environment that has evolved since the Federal Reserve initiated a series of rate hikes two years ago.

Michael Gregory, deputy chief economist at BMO, highlighted that because of robust economic indicators and persistent inflation, rate reductions may not be imminent until later this year.

"Looking ahead to 2025, we expect the Fed to stick to a gradual rate cut pattern," Gregory said in a statement.

The pursuit of homeownership remains a core element of the American Dream, with 67 percent of Americans still considering it a major life goal. This sentiment is particularly strong among younger generations, with 73 percent of both Millennials and Gen Z aspiring to own homes, despite financial hurdles.

Moreover, environmental factors are increasingly influencing where people choose to live. Approximately 41 percent of Americans are considering climate-related issues like water scarcity and extreme weather events in their living decisions over the next five years. This concern is more pronounced among Gen Z (58 percent) and Millennials (53 percent).

Financial strains extend beyond housing, with 60 percent of respondents noting that their cost-of-living concerns have grown in the past three months. Simultaneously, 68 percent are feeling the pinch from rising housing costs, equating the stress of these expenses to that of managing credit card debt.

"It's clear that Americans are feeling the strain of elevated rates, and many are uncertain about how to go about navigating the ever-evolving housing market," said Thomas Parrish, head of US retail lending at BMO.

Amid these challenges, financial planning remains a weak spot. Despite 74 percent of Americans setting financial goals and 81 percent feeling financial anxiety, only 32 percent have a written financial plan, and just 40 percent stick to an annual household budget.

"Creating a budget is not just about managing expenses; it's about taking control of your financial future," explained Paul Dilda, head of consumer strategy at BMO. He advocated for the importance of a structured financial approach to overcome current economic barriers and achieve personal financial milestones.

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