Housing expert: Mortgage rates will ‘cut out folks’ who want to buy

On top of the burden of student loans, millennials must contend with increasing mortgage rates as they try to purchase a home, according to one expert.

“There's a race right now to lock in those rates and know exactly what your payment is going to be for the next 30 years,” Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors (NAR), recently told Yahoo Finance (video above). “When we look towards 2022 and rates rising even more, it's going to cut out folks who are really stretching, who are saving and trying to enter home ownership.”

Last week, the rate on 30-year fixed mortgages – the most common home loan for buyers – edged down 3.55% from 3.56%, according to Freddie Mac, but remained among the highest levels since March 2020. Compared with a year ago, the monthly mortgage payment for 30-year conventional loans increased more than $300 to $2,000 at current rates.

That’s occurring as more than 45 million millennials enter their prime first-time home buying ages of 26 to 35 and are expected to enter the housing market this year.

A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. U.S. annual home price growth remained strong at 18 percent in October, the highest recorded in the 45-year history of the index, according to CoreLogic's Home Price Index. (Photo by Ting Shen/Xinhua via Getty Images)
A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. (Photo by Ting Shen/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)

Another whammy against these millennial homebuyers: Student loan debt.


Americans collectively owed $1.75 trillion in student loans in the third quarter of 2021, according to Federal Reserve estimates. While younger generations owed balances of around $17,338, according to Experian data, millennials shouldered an average $38,877 in student loan debt.

“It is very hard to juggle both rising rents and think about saving for a down payment,” Lautz said.

The pause on student loan repayments, which Congress passed in 2020 – and President Joe Biden recently extended until May 1, 2022 – gave millions of borrowers saddled with federal student loans breathing room in their budgets to save extra cash or pay down student loans without interest.

“For 38% of student loan debt holders, we know that the pandemic did get them closer to paying down their student loan debt,” Lautz said. “Not only did they take advantage of these pandemic relief programs, they were able to move to more affordable areas. They were able to move in with their parents. And they cut spending on restaurants and entertainment, like the rest of us did, as well.”

To increase your chances of success, Lautz recommended that potential homebuyers establish a long-term savings plan to pay down student debt and squirrel away for a down payment.

“Maybe that's the tax return or a gift from loved ones that you can chock into savings right now, and really be able to save for that down payment,” Lautz said. “And maybe that's further off – but putting that away today can be a big boom for the future.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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