The cost of down payment on home is putting off people in the US who rent from buying their own property, new research suggests.
Even though a mortgage payment is more affordable than a rent payment on a monthly basis, they are still finding it hard to afford the deposit needed for a first home, the latest report from real estate firm Zillow shows.
Almost 70% of renters surveyed cite the down payment as a greater barrier to home ownership than debt, job security and qualifying for a mortgage. Just over half of renters cite qualifying for a mortgage as a barrier to home ownership, half say debt is holding them back and almost 40% say job security is keeping them from buying a home.
The figures are published at a time when the home ownership rate is near an all-time low and has been falling since 2004, although members of the largest generation of Americans, millennials, are coming of age and starting to think about buying a home and settling down.
Rents are also at record highs, costing almost 50% of the median income in some cities. Making a monthly mortgage payment is cheaper than a monthly rent payment in all but two of the 35 largest metros but first renters need to save enough money for a down payment.
The Zillow Housing Aspirations Report, a semi-annual survey sponsored by Zillow and conducted by IPSOS, asked 10,000 renters and home owners in 20 metros across the country about their views on home ownership and their personal housing expectations going forward.
Some 63% of renters are confident that they will be able to afford a home someday, with 25% planning on buying in the next three to five years.
Millennial renters are more confident than any other generation that they will be able to afford a home someday, with 34% planning on buying in three to five years and 22% plan to buy in one to two years while 2% think they will never buy a home.
The majority of respondents, some 66%, believe owning a home is necessary to live the American Dream and 72% believe owning a home increases your standing in the local community while millennials believe these two statements more than any other generation.
With home values across the country at their highest point since June 2007, obtaining the 20% down payment on a home costs more than two thirds of the median household annual income and in pricier markets like San Jose and Los Angeles, buyers must come up with more than 180% of the median annual income, making a home purchase out of reach for many aspiring home owners.
‘With home values close to record highs, it’s no surprise renters are concerned about coming up with enough money to buy a home. Rising rents are also a factor as it is extremely difficult to save when you’re paying record high rents,’ said Zillow chief economist Svenja Gudell.
‘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 trade-off that may make sense for some buyers. 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,’ she added.
San Jose, San Diego and Los Angeles had the greatest share of renters say affording the down payment is the number one barrier to owning, at over 72% while women at 72% were more likely than men at 62% to select the down payment as the top barrier to home ownership.
One third of buyers used more than one source of funds for their down payment, including gifts and loans from family and over half of buyers saved by setting aside a little money at a time.