More expensive homes are leading to savings trouble among potential homebuyers
The rising cost of a down payment on a house is keeping would-be buyers renting.
Zillow says renters are having trouble saving for a down payment, making buying a home costly and more difficult.
“With home values close to record highs, it’s no surprise renters are concerned about coming up with enough money to buy a home,” says Zillow chief economist Svenja Gudell. “Rising rents are also a factor. It’s extremely difficult to save when you’re paying record-high rents.”
Despite mortgage payments being more affordable than some monthly rents, it’s buying the home that is the biggest issue. Almost 70 percent of renters say a down payment is the biggest reason they can’t buy a home.
More than half of renters say qualifying for a mortgage is their biggest purchasing setback. About 40 percent say job security is their number one factor.
“While it is possible to put down as little as 3 percent 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,” Gudell says. “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.”
Mortgage rates have already started climbing — as early as late last year. While mortgage rates were at historic lows following the recession, they’ve started to climb now that the economy is recovering.
While good news for the economy overall, it’s bad news for potential home buyers. The higher mortgage rates, plus the higher home values, mean would-be buyers are having trouble affording them.
A big issue is that relatively affordable homes are, in fact, selling. But those lower-income families that need them the most aren’t buying them.
Affordable housing for low-income Americans is scarce because housing that would be affordable for them is getting bought by higher-income Americans. We know it may be a good time to buy, but there are plenty of setbacks — like growing mortgage rates, stagnant income, and other debt — that are holding us back from buying.
Millennials — the group most interested in buying but also the most hesitant, have voiced major concerns about buying. It comes down to affordability, with down payment being their top worry. They’re still very much interested in ditching high rent prices in major cities for lower mortgage payments. But it’s being able to afford a down payment on top of other financial obligations that are holding them back.
Rising rents, even those among the cheapest apartments, are pushing renters out of their places, too. Lower-end apartments have become scarce and luxury apartments are constantly being built. This leaves lower-income Americans with very few places to live. Many are not willing to move and take a chance at living somewhere else.
“With home values across the country at their highest point since June 2007, cobbling together a 20-percent down payment on a home costs more than two-thirds of the U.S. median household annual income,” Zillow says. “In pricier markets, buyers must come up with more than 180 percent of the median annual income, making a home purchase out of reach for many aspiring homeowners.”
Article last modified on September 13, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: Renters Aren’t Buying Homes Because of Down Payment Woes - AMP.