Homebuyers strained by costs, confused about mortgage market

Mortgage rates remain below the 50-year average, but most homebuyers see them as unusually high — a perception that is driving stress, delaying purchases, and reshaping major life decisions, according to a nationwide survey conducted in August.

The survey of more than 1,000 buyers, released this week by Tomo Mortgage, highlights the gap between economic reality and consumer sentiment in the housing market.

Nearly one in three respondents to the survey said high mortgage rates are the nation’s biggest economic problem, and three-quarters said current rates are abnormally high, despite being lower than historic norms.

“Even with the recent dip in interest rates, the reality for most Americans hasn’t changed — buying a home still feels daunting,” said Tomo Mortgage CEO Greg Schwartz. “One in three buyers now see high mortgage rates as the country’s biggest economic problem, and 75% believe today’s rates are unusually high — even though they’re below the 50-year average.

“That disconnect between perception and reality is driving real stress in the market, and until confidence returns, demand will remain fragile.”

Delayed decisions

Mortgage rates play a central role in buyer hesitation.

About 85% said they had postponed their search at some point while waiting for lower rates. One-quarter reported delaying for more than a year.

Pessimism is high, with 82% believing rates will stay the same or rise in the next six months — in contrast with forecasts from major institutions predicting modest declines.

This standstill has left many buyers in limbo, saying they are both “actively searching” and waiting for rates to drop before committing.

Financial pressure, sacrifice

The rising cost of homeownership has reshaped how Americans plan their lives.

In 2000, a typical homebuyer spent about 20% of income on a mortgage — but today, that figure has climbed to 38%, the report said.

Survey results show that 59% of buyers delayed or abandoned major milestones such as marriage, children, education or career changes because of housing expenses.

More than one-third said the market made them “rethink their entire life.”

Sacrifice is widespread. Nearly half of buyers said they would skip vacations, while others reported cutting into retirement or emergency savings.

About one in three said they had given up on a dream job or career change to afford a home.

Financial anxiety is pervasive — with 60% expecting to feel “house poor” once they close, and 42% said buying a home today feels “incredibly risky.”

Historic context

Today’s rates are roughly one percentage point below the 50-year average of 7.7%, according to Freddie Mac.

But the pandemic’s record-low rates have created a “recency bias” that leaves many buyers feeling current levels are abnormally high, the survey added.

Fifty-five percent of respondents believed rates are higher now than in the 1980s — when they were nearly three times today’s levels.

Seventy percent thought rates had increased compared with last year, though in reality they were flat or slightly lower.

Misunderstandings and confusion

The survey also uncovered widespread misunderstanding of how mortgages work, contributing to unnecessary costs.

• Two-thirds of buyers said they did not understand “points,” often mistaking them for required fees.
• More than half assumed advertised rates on lender websites reflected what typical buyers would receive, though those rates usually apply only to borrowers with excellent credit and large down payments.
• Sixty percent did not know they could negotiate rates with lenders.

Despite the financial stakes, most buyers spend little time comparing lenders.

Over half said they devoted less than three hours to the process, and one in five spent less than an hour. Nearly 60% admitted they had spent more time shopping for clothes or hotels than for a mortgage.

Researchers estimate this confusion will cost Americans $11 billion in 2025.