Real and imaginary barriers holding back buyers

WASHINGTON – Feb. 2, 2017 – In 2016, existing-home sales increased 3.8 percent and hit a 10-year high, but affordability pressures, student debt and possible downpayment confusion prevented many aspiring homeowners from reaching the market, according to a recent analysis by the National Association of Realtors® (NAR).

NAR’s Aspiring Home Buyer Profile analyzed 2016 quarterly survey data from its Housing Opportunities and Market Experience (HOME) survey to capture movements in the housing expectations and sentiment of homeowners and non-homeowners – both renters and those living with a family member.

According to the findings, respondents maintained a favorable view about homeownership last year – over 90 percent of current owners and about eight out of 10 non-homeowners each quarter indicated that owning a home is part of their American Dream.

However, despite positive feelings, optimism about it being a good time to buy diminished among non-owners. The percent share who believed it was a good time to buy declined from 63 percent in the first quarter of 2016 to 55 percent by the fourth quarter. The share of homeowners who thought it was a good time to buy also dipped as the year went on but hovered at a much higher rate – around 80 percent each quarter.

“Nearly all non-homeowners said they want to own a home in the future (87 percent), but it’s evident that higher rents and home prices – up 41 percent in the past five years – along with limited entry-level supply and repaying student debt have combined to make buying a challenging goal,” says Lawrence Yun, NAR chief economist. “It’s also little surprise that non-owners in the West – where price appreciation has been the strongest – were the least optimistic about buying.”

Affordability and student debt an uphill climb

“Unable to afford to buy a home” was the number one reason non-owners cited as to why they don’t own. For the entire year, over half of non-owners indicated they could not afford to buy, while roughly one-fifth of respondents said they needed the flexibility of renting.

NAR’s analysis also found that student debt caused many non-owners to delay purchasing a home. Of the 39 percent of non-owners in the second quarter survey who said they have student debt, a majority indicated they are not-very or not-at-all comfortable taking on a mortgage (59 percent).

Yun says these findings align with a separate NAR study conducted last year. It found that nearly three-quarters of non-homeowners who are employed and repaying student loans believe their debt is stymieing their ability to purchase a home; slightly over half expect that delay to last five or more years.

“In addition to having to postpone important milestones such as getting married and starting a family, many young adults are financially falling behind previous generations, in part because of having to prioritize repaying their sizeable student loans over buying a home and saving for retirement,” says Yun.

Unrealistic expectations about downpayments

Apparent confusion about downpayment requirements may also be behind non-owners’ lagging confidence about buying. NAR’s Profile of Home Buyers and Sellers has shown that the median downpayment for first-time buyers has been 6 percent for three straight years and 14 percent for repeat buyers in three of the past four years.

However, when asked about the amount of a downpayment needed to purchase a home, a remarkable 87 percent of non-owners indicated that a downpayment of 10 percent or more is necessary.

“Current non-owners’ ultimate goal of owning a home may not be as far-fetched as they believe,” says NAR President William E. Brown. “There are mortgage options available for creditworthy borrowers with manageable levels of debt and smaller downpayments. Those interested in buying their first home in 2017 should review their finances, sit down with a lender to see if they qualify for a mortgage, and find a Realtor to help them get started on their home search.”

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Reprinted with permission. © Florida Realtors. All rights reserved.

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