Renters are increasingly unsure about buying a home in the current environment of limited inventory and skyrocketing home prices, according to the third-quarter National Association of Realtors HOME survey, which tracks consumer sentiment on the housing market.
The survey found that a pervasive misunderstanding about how much of a down payment is required to buy a home was contributing significantly to that uncertainty. Fewer than 20% of respondents — across a range of incomes, ages and backgrounds — said they were aware of low down-payment options that would require 10% or less of the purchase price up front.
- Overall, about half of survey participants said they believed the economy was improving, and the survey's Personal Financial Outlook Index revealed that more respondents believe they will be better off financially in six months than the index recorded in previous iterations of the survey.
The NAR found that while most renters (60%) and homeowners (78%) still believe that now is a good time to buy a home, the percentages are down slightly from the previous two quarters. NAR Chief Economist Lawrence Yun blamed the dip on rising home prices and limited housing stock, which have plagued potential buyers for some time now. Even with low mortgage rates and continued job growth, he said, price and availability are chipping away at buyer confidence, particularly in the U.S. West region entry-level market.
Another factor keeping homebuyers from making an offer on a house and moving into homeownership is the down payment requirement. The HOME survey found that 43% of older baby boomers and 37% of millennials surveyed believed that they would have to come up with a down payment of more than 20% in order to buy a home. In more expensive markets, Yun said, that could translate into a $100,000 down payment requirement, which would be out of many buyers' reach. The reality, however, is that for potential buyers with good credit, down payment requirements could be as low as 3%.
According to the latest CoreLogic Home Price Index, U.S. home prices rose 1.1% between June and July 2016 and 6% since July 2015. Demand-generating factors like low mortgage rates and employment growth, said CoreLogic Chief Economist Frank Nothaft, would continue to push home prices higher.