As we enter Spring 2025, a host of challenges continue to plague potential first-time homebuyers. Factors such as persistently high mortgage rates, limited housing inventory, and sluggish economic growth are still with us, and this unfavorable environment — according to the experts — is showing little chance of improvement. In the 2025 Home Buyer Report, a nationally representative survey commissioned by NerdWallet and conducted by The Harris Poll in late 2024, 69% of Americans say the housing market “has never been worse for buyers than it is right now.” But how can community banks prepare consumers for a future turn of tide? Read on to see!
2024 Challenges Remain in 2025
- Mortgage Rates: Mortgage rates have remained relatively high. According to US News & World Report, experts predict they will hover between 6% and 7% throughout 2025 and stay in that range for the next two years.
- Housing Inventory: The United States continues to experience a significant housing shortage, with estimates indicating a deficit of up to 3.8 million homes. Investopedia, in “Why is the US housing market short by nearly 4 million homes?,” reports that “builders would take 7.5 years to catch up with demand as inventory struggles pressure home affordability.” This shortage, of course, contributes to increased competition and elevated home prices, making it particularly challenging for first-time buyers to enter the market.
- Economic Growth: The economy is projected to grow at a subdued pace. JP Morgan sets their expectations of a “3% or less increase in 2025.” The Federal Reserve Bank of Philadelphia anticipates real GDP growth of 2.4% for the year, and the Congressional Budget Office “projects a cooling of economic growth in 2025 and 2026, with an average annual growth rate of approximately 1.8% from 2027 to 2035.”
While there are certainly external factors that are beyond the potential home-buying individual’s control, those looking forward to that first-time purchase can take steps to prepare for it. And community banks can play a pivotal role in that preparation.
“Many homebuying hopefuls are taking action, but it may not be enough. More than half (54%) of prospective buyers say they’ve begun looking at homes on listing apps, but just 35% have started a down payment fund.”– NerdWallet 2025 Home Buyer Report
The Financial Preparedness Gap
A critical issue facing many first-time homebuyers is inadequate financial preparedness. Factors contributing to this gap include:
- Insufficient savings: Many potential buyers struggle to accumulate the necessary funds for down payments and closing costs, often due to high living expenses and student loan debts.
- Limited financial literacy: A lack of understanding about the homebuying process, mortgage options, and budgeting can hinder individuals from making informed decisions. And, not only decisions about home buying, but — as we discussed in a recent blog — retirement, as well.
- High debt-to-income ratios: High levels of personal debt relative to income can disqualify buyers from favorable mortgage terms.
The Importance of Financial Preparedness
The challenging climate should not deter homebuyers from taking the very important steps toward being prepared when the time is right. Effective money management is crucial in positioning oneself for future homeownership. Keys to that are:
- Down payment savings: A substantial down payment can significantly reduce monthly mortgage obligations and potentially eliminate the need for private mortgage insurance. However, a survey commissioned by NerdWallet revealed that nearly half (45%) of non-homeowners cite a lack of savings for a down payment as a primary barrier to purchasing a home.
- Creditworthiness: Maintaining a strong credit score is essential for securing favorable mortgage terms. Lenders assess credit history to determine the risk associated with lending, and a higher credit score can lead to lower interest rates.
- Debt management: Managing existing debts effectively ensures a favorable debt-to-income ratio, a critical factor that lenders consider during the mortgage approval process.
The Opportunities for Community Banks
Community banks are uniquely positioned to assist potential first-time homebuyers in navigating these financial preparations through various initiatives. And, with April’s Fair Housing Month just around the corner, now’s the perfect time for:
Educating Employees and Customers
- Educational workshops and webinars: By hosting sessions on topics such as budgeting, credit improvement, and the homebuying process, community banks can empower individuals to better manage the homebuying process.
- Personalized financial counseling: Offer one-on-one consultations with loan officers that can guide clients in developing a plan to achieve their homeownership goals.
- Savings Programs: Implementing specialized savings accounts with favorable terms can encourage disciplined saving habits.
- Collaboration with housing agencies: Partnering with local housing authorities and nonprofit organizations can provide additional resources, such as down payment assistance programs and homebuyer education courses.
- Internal communications: Share information about Fair Housing Month and the FHA with customers and employees through newsletters, emails, or meetings.
- Public awareness: Develop educational materials or campaigns to inform customers about their rights under the FHA and how to report discrimination.
- Website Information: Include information about fair lending and the FHA on the bank's website.
Participating in Community Events
- Community events: Organize or participate in community lending events to provide financial literacy and homeownership counseling to underserved communities.
- Partner with local organizations: Collaborate with fair housing organizations, community groups, and government agencies to promote fair housing initiatives.
- Attend events: Support and attend local events and workshops focused on fair housing and community development.
The Community Banker’s Role
The housing market in 2025 presents notable challenges for first-time homebuyers. However, by concentrating on aspects within their control — such as enhancing financial literacy, saving diligently for down payments, and maintaining strong credit profiles — aspiring homeowners can improve their readiness for when market conditions do become more favorable. Fair Housing Month is an ideal time to educate both employees and future homebuyers so that when the time comes, everyone is well prepared to make that home purchase happen.
Bank Marketing Center
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We also want to share what we know – and learn along the way – with all our community banking friends. Whether it’s the latest on AI technology, suggestions on how to attract and retain top talent, or the importance of data protection, we’re here to make bank marketing the best that it can be.
Want to learn more about what we can do for your community bank and your marketing efforts? You can start by visiting bankmarketingcenter.com. Then, feel free to contact me directly by phone at 678-528-6688 or via email at nreynolds@bankmarketingcenter.com. As always, I welcome your thoughts.