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Mortgage

What younger first-time homebuyers want

And what are the challenges to getting it

Is the next generation a bunch of rootless renters, or will they too follow the patterns of previous generations?

Fannie Mae’s Economic & Strategic Research Group sought to better understand what housing choices younger renters prefer – and what financial constraints they see – in order to shed light on the challenge of fulfilling housing aspirations in a financially sustainable way.

The team noted that potential first-time homebuyers face credit standards that have risen since the housing crisis. Overall, the total number of renter households has been increasing since the housing crisis, as the number of owner households has decreased. Still, analysis of data from Fannie Mae's National Housing Survey shows that most younger renters prefer owning both for lifestyle and financial reasons.

“However a large majority of them have remained pessimistic over the last few years about their ability to get a mortgage; in contrast, younger owners have grown more optimistic,” says Sarah Shahdad, strategic planning analyst at Fannie Mae. “Demographic differences between younger renters and younger owners may explain part of the gap in attitudes shown in the chart below.

“Younger owners are more likely to: fall in the higher end of the age range, earn more household income, and be employed full time, compared with younger renters. The widening of that same gap during the last few years suggests that confidence in one’s ability to get a mortgage is growing primarily among those who have already met financial requirements,” she said. “Our results suggest that many younger renters may continue to rent longer due to insufficient financial capability and/or preparation, despite the majority's preference for owning.”

Fannie’s team found that enhanced housing education and alternative approaches to housing and savings may help renters fulfill their housing aspirations in a financially sustainable way. Educational resources and tools may help renters make more informed decisions about their housing choices and begin managing their finances early and efficiently in order to fulfill their goals.

They also suggest alternative paths to homeownership that may serve as a bridge for some renters. For example, about three-quarters of younger renters and owners say a lease-to-own arrangement would make renting more desirable.

“Renters ultimately may view renting more favorably if it enables them to achieve certain benefits typically associated with homeownership, such as automatic savings, more control over their living space and environment, and living in their preferred school district,” Shahdad said.

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