Increasing costs of homeownership are placing a strain on homeowners and their future plans, according to TD Bank's 2024 Mortgage Service Index that surveyed more than 1,800 homeowners. Homeowners report cost increases in utilities (83%), home insurance (81%), property taxes (81%) and repairs (74%).
Because of the rising costs, 70% of homeowners say their ability to save or budget effectively has been impacted. The strain has affected homeowners’ ability to contribute to their savings accounts (33%) or 401(k)s (16%), and budget for investing (22%), “fun” (33%), travel (33%), or monthly expenses (27%).
One-third of homeowners (32%) have reduced or stopped contributing to retirement savings to save for a down payment or home budget. A trend especially prevalent among younger homeowners with three in five Gen Z homeowners (59%) having lowered or stopped their 401(k), IRA or other retirement account contributions, followed by 38% of Millennials as they save for a down payment or home budget.
In addition to budgetary restraints, lower inventory levels have caused homeowners to re-evaluate their budget and savings expectations. Of respondents who plan to stay in their current home for less than three years, 73% say they increased their initial housing budgets because of the unexpected costs of homeownership. The reasons for increases include significantly rising home prices in their desired area (45%), high interest rates (31%), and a lack of options within their price range (31%).
Instead of purchasing new homes, many homeowners are focusing on enhancing their current living spaces, with 25% of homeowners planning to stay in their current homes forever. Additionally, most homeowners (73%) plan to embark on home renovations in the future, with 28% planning to start within the next year. Seventy-two percent indicate they are currently looking for more space in their home, and 39% would consider building an addition onto their existing home for more space rather than moving because of current interest rates.
As rates remain higher for longer, the survey found that 42% of Gen Z said they had interest rates of 5.00% or higher, followed by millennials (35%), Gen X (30%), and baby boomers (30%). Fifty-four percent did not report using a rate buydown when purchasing their homes and 42% of homeowners found using a rate buydown helped lower their housing costs.
For down payments, 80% of Gen Z put down less than 20% followed by 77% of millennials, 60% of Gen X, and 44% of boomers. “It’s encouraging so many homeowners understand that 20% down is not the only option, with many lenders offering low-down payment products and down payment assistance programs," says Steve Kaminski, head of U.S. residential lending for TD Bank. "As younger generations grapple with historically high home values coupled with larger financial responsibilities and a higher cost of living, it's important to make every dollar count.”
Despite the tight conditions, 67% of homeowners still feel that purchasing a home is attainable and 38% say they’re likely to purchase another home in the next year. The most optimism was found in younger generations including 84% of Gen Z and 68% of millennials.
“Although many of the challenges impacting homeownership are leaving some homeowners weary about the market, it's great to see borrowers, especially younger generations, remaining steadfast in navigating the market to find a home that works for them and their budgets,” says Kaminski. “Owning a home is still an important wealth vehicle for any generation and it's reassuring that homeowners continue to see the value in this type of investment."
An uptick from 64% of respondents in 2023, 71% of homeowners found buying their most recent home stressful. Of the group, 82% were Gen Z compared to 60% of baby boomers who may already have a roadmap of the home buying process.
Over half of the respondents (57%) contacted realtors for information, education, or opinions on the products or services offered by each bank or lender they considered. Other top sources included family and friends (37%), bank/lender websites (36%), and in-person meetings at branches or lender offices (34%).
