A new survey from Zillow shows that while mortgage payments are more affordable on average than monthly rent payments, renters are struggling to buy a home due to perceived down-payment barriers.
In fact, nearly 70% of renters cited down payments as a greater barrier to homeownership than debt, job security and qualifying for a mortgage, according to Zillow’s Housing Aspirations Report.
Renters also gave other barriers such as qualifying for a mortgage, a barrier more than 50% of renters say is holding them back, and another 50% say debt is holding them back. Almost 40% of renters answered that job security is keeping them from buying a home.
“While it is possible to put down as little as 3% on a home, the trade-off is a higher interest rate and costly private mortgage insurance, a financial tradeoff that may make sense for some buyers,” Zillow Chief Economist Svenja Gudell said. “But with interest rates rising in 2017, it’s important to remember that a lower interest rate can save buyers thousands of dollars over the life of their loan.”
“For those trying to save for a down payment, it’s important to set realistic goals and realize it may take a few years,” Gudell said. “Also, consider working with a reputable financial advisor to help set a budget that works for you.”
The Zillow Housing Aspirations Report, a semi-annual survey sponsored by Zillow and conducted by IPSOS, asks 10,000 renters and homeowners in 20 metros across the country about their views on homeownership and their personal housing expectations going forward.
As it stands, rents are currently at record highs, costing nearly 50% of the median income in many cities, Zillow’s report states. About 63% of renters are confident they will someday be able to afford a home, with 25% planning on buying one in the next three to five years.
The report shows Millennials are the most confident generation as only 2% answered they never plan on buying a home. In fact, 34% of Millennial renters said they plan on buying a home in the next three to five years and 22% said they will buy a home in the next one to two years.
And while many renters may be delaying homeownership, 66% still believe it is an essential to the American dream, and 72% believe owning a home increases your standing in the local community. Millennials believe these two statements more than any other generation.
This seems to contradict Freddie Mac’s report, which shows as renters become more confident in their personal finances, they say they will keep renting. In fact, many answered even if they move, they are likely to rent again.
But perhaps it is not surprising many renters are delaying home buying for now as home prices continue to increase to new highs.
“With home values close to record highs, it’s no surprise renters are concerned about coming up with enough money to buy a home,” Gudell said. “Rising rents are also a factor, it’s extremely difficult to save when you’re paying record-high rents.”