With home prices continuing to rise and mortgage rates remaining stubbornly high, is the American dream of homeownership out of reach?
Home prices jumped 3.8% in February compared to the same time last year, according to the latest National Association of Realtors (NAR) findings. That translates to a median cost of $398,400 for a typical home.
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And while mortgage rates are slowly ticking down, the 30-year fixed-rate mortgage still averaged 6.65% as of March 27, according to Freddie Mac.
But it’s not all bad news. Housing inventory is up 17% from a year ago (from 1.06 million to 1.24 million units), which means homebuyers now have more options.
“Homebuyers are slowly entering the market,” said NAR Chief Economist Lawrence Yun, in a press release. “Mortgage rates have not changed much, but more inventory and choices are releasing pent-up housing demand.”
How home prices are affecting buyers and sellers
While housing inventory is up, supply is still limited relative to demand, according to NAR’s Realtors Confidence Index. About 21% of homes sold above list price — though some faced delays or terminations. First-time buyers represented 31% of home purchases, up from 26% a year ago.
Still, the dream of homeownership is slipping away for many Americans, particularly as prices continue to outpace wage growth.
Affordability remains near historic lows across most of the country, according to ATTOM’s first-quarter 2025 U.S. Home Affordability Report, with home expenses consuming 32% of the average national wage.
“With the peak buying season ahead, prices could rise further, worsening affordability,” said Rob Barber, CEO of ATTOM, in a release.
According to Zillow’s market heat index, neither buyers nor sellers currently have a clear advantage — at least not on a national level. But market conditions vary widely across the country. For example, government layoffs in Washington, D.C. could lead to more listings, while housing shortages in L.A. caused by January’s wildfires are likely to drive up demand — and prices.
Economic uncertainty is providing a “counterbalance” that will be felt more strongly in some parts of the country than others, notes Zillow’s Housing Market Report for February 2025.
“People tend to shelter in place when the future of their job or industry is uncertain,” the report noted.
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How to navigate a challenging market
With so much uncertainty, how can potential homebuyers navigate today’s market?
Start by securing a mortgage pre-approval, so you’ll know your budget — and be ready to make an offer if you find your dream home. Keep in mind that a pre-approval isn’t a guarantee of final mortgage approval. However, sellers often prefer to work with pre-approved buyers because it reduces their risk.
Pre-approval tells you the maximum loan amount your lender is willing to offer based on your financial situation. If it’s less than you hoped for, that doesn’t mean you’re out of luck. You might want to focus on different property types (such as a condo instead of a three-bedroom house) or focus on emerging neighborhoods to get more bang for your buck.
You’ll also need to decide how much you can afford for a down payment and whether a fixed or adjustable interest rate works best for you. If you’re willing to bet that rates will come down eventually, you might want to consider an adjustable-rate mortgage (ARM).
An ARM starts with a fixed rate that’s typically lower than that of a 30-year fixed-rate mortgage — usually for three, five, seven or 10 years — and then adjusts at set intervals. For example, a 5/1 ARM has a fixed rate for five years and then adjusts annually.
Where can I find more help?
First-time homebuyers may also qualify for certain programs and loans. For example, a Federal Housing Administration (FHA) loan — available through qualified lenders and backed by the FHA — is generally easier to qualify for than a conventional mortgage and has lower down payment requirements. These loans do come with limits, which vary by state.
Many states also offer down payment assistance for eligible first-time homebuyers.
Veterans and active-duty service members may be eligible for U.S. Department of Veterans Affairs (VA) direct and VA-backed home loan programs through qualified lenders, which often offer better terms than conventional loans. Nearly 90% of VA-backed loans don’t require a down payment.
There are also down payment assistance (DPA) programs available through state, county and city governments. These offer financial assistance through grants and low-interest loans to cover down payments — and sometimes closing costs. There are nearly 2,500 DPA programs currently available nationwide.
Alternatively, you might choose to wait for potential rate stabilization. A lower interest rate make a big difference: lower monthly payments can stretch your budget and help you afford a more expensive home. But there’s no guarantee that rates will drop soon.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
