What’s the ideal mortgage rate to buy a home? Older, younger generations diverge

Regardless of how mortgage rates move, older Americans are far less likely to say they’d feel comfortable buying or selling a home this year, according to Bankrate’s Mortgage Rates Survey.

Younger generations feel differently, with millennials and Gen Z more likely to say they’d feel comfortable buying a home this year with rates under 5 percent.

The survey findings illustrate a generational fault line in the housing market brought on by the mortgage lock-in effect: Many homeowners secured low-rate mortgages during the pandemic, and aren’t keen to replace those with today’s higher-cost loans.

Older generations more likely to say there’s no magic mortgage rate

When Bankrate asked what mortgage rate, if any, would make them feel comfortable buying a home this year, older Americans were more likely to say there’s no rate that would make them comfortable. That includes 51 percent of baby boomers (ages 60 to 78) and 44 percent of Gen X (ages 44 to 59).

What’s more, older homeowners — 49 percent of baby boomers and 46 percent of Gen X — were more likely to say there’s no rate that would make them feel comfortable selling a home this year.

In contrast, 35 percent of both millennials (ages 28 to 43) and Gen Z (ages 18 to 27) say there’s no rate that would make them feel comfortable buying a home this year. Thirty-one percent of millennial homeowners say there’s no rate that would make them feel comfortable selling a home this year.

Millennials most likely to say they’d feel comfortable with rates under 6% or 5%

Forty percent of baby boomers say they’d need a mortgage rate less than 6 percent to be comfortable buying a home this year — something of a surprise given that older boomers recall mortgage rates hitting 18 percent in the early 1980s.

Still, their expectations today might be shaped by more recent trends. From 2009 through 2022, mortgage rates rarely ventured above 6 percent, making today’s 7 percent rates seem shockingly high.

As for the 6 percent threshold, that figure was also cited by 43 percent of Gen X, 48 percent of millennials and 44 percent of Gen Z as the rate that would make them feel comfortable buying a home this year.

Still, some need rates to drop further: Thirty-seven percent of baby boomers, 38 percent of Gen X, 42 percent of millennials and 37 percent of Gen Z would feel comfortable buying a home this year if rates were less than 5 percent.

“Gen Z and millennial homebuyers are more likely to be making their first home purchase, or move-up purchase, or corporate relocation purchase, than baby boomer and Gen X homeowners that are happy where they are and aren’t compelled to make a change to the same extent,” says Greg McBride, CFA, chief financial analyst for Bankrate.

Gen X most likely to say they’d feel comfortable with rates under 4% or 3%

Gen X (33 percent) were most likely to say they’d need a mortgage rate less than 4 percent to feel comfortable buying a home this year, compared to 32 percent of millennials and 31 percent of baby boomers.

Some plan to hold out for even lower rates: Twenty-two percent of Gen X say they’d need a mortgage rate less than 3 percent to be comfortable buying a home this year, compared to 18 percent of both millennials and baby boomers and 12 percent of Gen Z.

• Methodology

  This survey on mortgage rates was conducted using an online interview administered to members of the YouGov Plc panel of individuals who have agreed to take part in surveys. Emails were sent to panelists selected at random from the base sample. The responding sample is weighted to the profile of the sample definition to provide a representative reporting sample.
  
  All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,294 adults, of whom 1,133 were current homeowners. Fieldwork was undertaken June 18-20, 2024. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+).