First-time homebuyers are facing another hurdle as a weaker U.S. labor market makes it harder to save for a down payment. The economy shed 23,000 jobs in July, while labor force participation fell to 61.4%, adding to concerns about slower wage growth and household affordability.
The weaker labor market comes as mortgage rates have climbed to their highest level of the year, putting additional pressure on prospective buyers.
Labor Market Hits Housing
The softer labor market is weighing on household confidence and making it harder for prospective buyers to build the savings needed for a down payment.
“The labor market is really the underpinning of the housing market,” Realtor.com Senior Economist Joel Berner told FOX Business in an interview. “When people don’t feel confident about their jobs and their income, they’re not very likely to make a huge purchase like buying a home.”
Berner said the weaker labor market, combined with wages growing more slowly than inflation, could make it harder for households to save and ultimately purchase homes.
Saving For A Down Payment
The pressure is particularly significant for first-time buyers, who may have less accumulated home equity or savings to draw on.
“This is not a great recipe for the housing market,” Berner said. “Not only does it affect people’s confidence, but it affects how much they’re able to save for their down payments.”
Recent mortgage buyers are already showing how sensitive household budgets can be to financial setbacks. A survey of 1,000 Americans who purchased a home within the past 24 months found that 88% of recent buyers with mortgages said at least one common financial setback, including a job loss, major repair or unexpected medical bill, could jeopardize their monthly payment.
Mortgage Rates Add Pressure
Higher borrowing costs are making the situation harder. Mortgage rates have moved higher in recent weeks and are expected to remain around current levels through the end of the year.
“In this high mortgage rate environment — mortgage rates just jumped to their highest point in the year — it’s kind of a double whammy for first-time homebuyers especially,” Berner said.
Recent housing data has also pointed to continued affordability pressure. The median age of first-time homebuyers reached a record 40 years in 2025, while affordability, elevated inventory and higher construction costs remained challenges for the housing market.
Buyers Face A Double Squeeze
The combination of weaker income growth and higher mortgage rates can affect buyers at two stages: saving for a down payment and financing the home once they buy.
“They’re not able to save as much for a down payment, and then when they go to buy a home, they have to finance more of their purchase at higher rates, so the affordability squeeze is really coming from all angles,” Berner said.
Mortgage lenders are also facing pressure as elevated rates weigh on demand. New data from the Mortgage Bankers Association showed the average 30-year fixed mortgage rate rose to 6.81% from 6.76%, the highest level in more than a year. Total mortgage applications fell 2.9%, while purchase applications declined 4% and refinance applications dropped 2%.
Housing-market pressure is also weighing on mortgage lenders, with UWM Holdings Corp (NYSE:UWMC), the parent of United Wholesale Mortgage, suspending its quarterly dividend and raising $2.05 billion in fresh capital after reporting a second-quarter loss.
Housing Demand Could Stay Tepid
Berner expects the higher mortgage-rate environment to persist through the end of the year, while softer housing demand could continue to affect prices and listings.
“We’re really seeing a slowdown in terms of listing prices this year, a little bit higher sales activity than last year, because buyers and sellers are kind of meeting in the middle at a better pace than they were in the last couple of years,” he said.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image: Michael L. Diamond / USA TODAY NETWORK via Imagn
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