This week the homeownership rate barely moved from its 50-year low. Trulia’s report was even more condemning: Millennials are losing hope that homeownership is part of the American dream.
As it turns out, there are many factors keeping Americans from homeownership, both real and imaginary, according to a new report from the National Association of Realtors.
Existing home sales recently increased 3.8% to a 10-year high in 2016, however affordability, student debt and confusion about down payment requirements kept many from owning a home, according to the report.
NAR analyzed data from its Housing Opportunities and Market Experience survey in order to understand housing expectations and sentiment among homeowners and non-homeowners, renters and those who live with a family member.
The survey showed that about 80% of respondents still claim homeownership is part of their American dream. However, non homeowners who say now is a good time to buy decreased from 63% in the first quarter of 2016 to 55% in the fourth quarter. Homeowners are much more optimistic as 80% say it is a good time to buy a home.
“Nearly all non-homeowners said they want to own a home in the future, 87%, but it’s evident that higher rents and home prices, up 41% in the past five years, along with limited entry-level supply and repaying student debt have combined to make buying a challenging goal,” NAR Chief Economist Lawrence Yun said.
“It’s also little surprise that non-owners in the West – where price appreciation has been the strongest – were the least optimistic about buying,” Yun said.
The number one reason non-owners cited for not owning a home was affordability. In fact, over half of all non-owners cited this reason, while another 20% said they needed the flexibility of renting.
While student debt has not prevented homeownership, it does seem to be delaying it. Of the 39% of non-owners who said they have student debt, 59% responded that they would not be comfortable taking on a mortgage.
“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,” Yun said.
Another factor hindering homeownership is actually more imaginary than real. While 87% of non-owners responded that a down payment of 10% or more is needed to buy a home, that is simply not the case. Many banks announced their new 3% down programs for conventional loans, and some even offer mortgages that require zero down.
In fact, the median down payment for first-time buyers stands at 6% for three straight years, and 14% for repeat buyers in three of the past four years, according to NAR’s Profile of Home Buyers and Sellers.
“Current non-owners’ ultimate goal of owning a home may not be as far-fetched as they believe,” said NAR President William Brown, a Realtor from Alamo, California. “There are mortgage options available for creditworthy borrowers with manageable levels of debt and smaller down payments.”
“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,” Brown said.