Property price growth and tight supply are leading to softening confidence among renters in the United States about whether it’s a good time to buy a home, according to the latest research.
The survey from the National Association of Realtors (NAR) also found that a misconception about how much of a down payment is needed to buy could be unnecessarily delaying some qualified young adults from entering the market.
Respondents were asked about their confidence in the US economy and various questions about their housing expectations, including a series of questions related to down payments and the amount of money they believe they need to purchase a home.
Heading into the autumn months, the share of home owners and renters who believe now is a good time to buy remains at a solid majority but has crept downward since the beginning of this year. Some 78% of home owners said it is a good time to buy, down from 80% in June and 82% in March while 60% of renters said so compared with 62% in the previous two quarters.
According to Lawrence Yun, NAR chief economist, it is clear the ongoing upward trend in home prices and severe inventory shortages in a large portion of the country are hitting consumer perception, especially among renters.
‘This summer’s historically low mortgage rates injected some additional demand into the market, but the dearth of homes for sale continues to keep a lid on sales but not prices. Given the stiff competition and limited homes available at the lower end of the market, it’s not surprising at all that those under the age of 34 and in the West are the least confident about it being a good time to buy,’ he pointed out.
‘Very affordable mortgage rates and strong job gains among young adults should be translating to a higher rate of home ownership. It’s not, and as a result, sales to first-time buyers remain stuck below a third of all sales,’ he added.
The home survey also found that awareness of low down payment mortgage options was scarce across all ages, income brackets and education levels. Fewer than 20% in each group indicated that they need 10% or less to finance their home purchase. Some 43% of those aged 65 and older and 37% of those under the age of 35 were the most likely to believe that they need more than 20%.
‘It’s possible some of the hesitation about buying right now among young adults is from them not realizing there are mortgage financing options available that do not require a 20 percent down payment, which would be north of $100,000 in some expensive areas in the country,’ said Yun.
‘In fact, most first time buyers put down much less. In the 35 year history of NAR’s Profile of Home Buyers and Sellers, the longest-running survey series of national housing data, the average median down payment has been 5% for first time buyers,’ he explained.
With home prices and rents continuing to climb and make it difficult for many to save for a home purchase, some 19% of current home owners said they are receiving down payment assistance from a parent or relative. Home owners ages 34 and under were the most likely to say they received help from a parent or relative along with those living in the Northeast and in urban areas.
When it comes to giving aid to prospective buyers, 16% said they have helped a child or relative with their down payment. The report says it is no surprise that the older the respondent, the more likely they were to assist.
‘Creditworthy prospective buyers should know that many lenders now offer safe, sustainable loans with as little as 3% down and obtaining a mortgage isn’t as difficult as it was in the immediate years after the downturn,’ said NAR president Tom Salomone.
‘Every buyer is different. Before deciding how much to use on a down payment, buyers should carefully review their financial situation and make sure they still have enough money set aside after the home purchase for unexpected expenses and emergencies,’ he added.
The survey also found that just 48% of all households in the survey believe the economy is improving. The younger the household the more optimistic they were about the economy’s future prospects. Meanwhile, 63% of those living in rural areas and 61% of those over the age of 65 don’t believe the economy is improving.
