For renters hoping to purchase a home, saving for a down payment is as great a challenge as ever, but rising home prices are making it even harder for many to save what they need to get into their first homes.
Zillow’s new Home Aspirations Report found that two out of three renters (67.9 percent) consider saving the cash for a down payment to be their greatest barrier to homeownership.
The Zillow survey closely tracks similar research, including Down Payment Resource’s latest survey of 750 potential buyers (63 percent have not saved for a down payment) and NAR’s annual Profile of Home Buyers and Sellers.
What’s different these days is rising home prices. February marked the 55th consecutive month of annual U.S. home value growth and the 18th month in a row in which annual appreciation exceeded 5 percent.
Rising prices are increasing the amount buyers need to put down on a home and are lengthening the wait for renters eager to buy their first homes.
Sixty five percent of renters participating in the survey said they think it will be moderate to extremely difficult to save for a down payment.
“For renters trying to save for a down payment on a home, (saving for a down payment) can often feel like trying to hit a moving target. A renter saves up enough to put a decent amount down on a home in their price range, perhaps only to find out that home has appreciated in value beyond their means,” said Svenja Gudell, Zillow’s chief economist.
At of the end of 2016, the typical homebuyer nationwide buying the median-valued home could expect to pay about 15.8 percent of their household income for a mortgage.
An average U.S. renter, unable to take advantage of low mortgage interest rates, should have expected to pay 29.2 percent of their earnings to their landlord each month — and close to half their income in a handful of very pricey markets.
And as the share of income spent on rent rises, saving money for anything – let alone tens of thousands of dollars set aside for a down payment — becomes increasingly difficult, Gudell said.
The new Zillow study found that millennial renters (aged 18-34) are more likely than older buyers to rank down payment woes as their toughest barrier to homeownership.
Down payment concerns were surprisingly more prevalent among those in the highest income bracket than in the lowest, perhaps because they can qualify for more expensive homes.
Still, more than half (63 percent) of renters said they are confident they will be able to afford a home someday, with 25 percent saying they plan on buying in the next three to five years.
The current median down payment for a first-time homebuyer is approximately 6 percent.
Some additional highlights from the report:
- Almost all respondents (90 percent) said they are confident they will be able to stay in their current home for as long as they want. Respondents in Atlanta and Detroit were the most confident.
- Most (66 percent) said they believe owning a home is necessary to live the American dream, and 72 percent stated that they believe owning a home increases their standing in the local community. Millennials are more committed to homeownership than other generations.