Today’s young homeowners aren’t just hoping the Federal Reserve will cut interest rates. In many cases, they’re counting on it.
A recent survey found that nearly two-thirds of Gen Z and millennial homeowners say their financial well-being depends on eventually refinancing their mortgage. This is double the rate of baby boomers, many of whom locked in record-low rates before 2022.
It’s a gamble that highlights a growing generational divide in the housing market, where younger buyers face high prices, elevated borrowing costs, and a sense of uncertainty about what comes next.
The difference a rate cut could make is easy to see. A $400,000 mortgage at today’s 6.35% rate comes out to just over $2,100 a month. Drop that rate to 4.35% and the payment falls roughly $550 — a meaningful difference for households already stretched by housing costs, groceries, and student debt. It’s no wonder that younger homeowners, many of whom entered the market after 2022, are anxious for relief. But with most economists expecting only modest rate cuts in the near future, banking on significant reductions may prove more wishful thinking than financial strategy.
The strain is evident beyond just mortgage math. Nearly one in three Gen Z and millennial homeowners reported “significant stress” during the buying process, compared with just 22% of baby boomers. Younger homeowners were also more likely to feel financially insecure after closing or to lack confidence in their loan terms. Boomers, by contrast, are often sitting comfortably on low-rate mortgages or own their homes outright. And many have little incentive to sell. In fact, more than 40% of boomers say they don’t plan to at all, further tightening supply and keeping home prices high.
Since 2020, the median U.S. home price has jumped more than 30%, while the cost of so-called starter homes has nearly tripled over the past decade. For many millennials and Gen Zers, that means buying later, buying smaller, and often buying with the expectation that refinancing will one day provide breathing room.
Whether or not that expectation is realized could shape not only the financial futures of two generations, but also the trajectory of the housing market itself.
This post was based on information found on Puget Sound Business Journal.