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By most measures, buying a home has never been more expensive. Financial barriers to homebuying aren’t limited to first-timers, nor is the “lock-in” effect the only thing keeping current owners from their next purchase.
Despite several potential advantages, including unprecedented equity, higher incomes and stronger credit, a new consumer survey suggests many owners may need a gift or personal loan to buy again.
According to an October survey of 3000 potential homebuyers conducted by Dig Insights, 80 percent of first-time homeowners said they would need a gift or personal loan to qualify this time around. That represents a significant increase for that group of respondents. Only 27 percent of them received one or the other when they bought their current home, and less than one-third of those who did said they needed the funds to qualify.
This shift wasn’t confined to entry-level buyers, either. Over 20 percent of the first-time buyers in the survey had a gross income of $100,000 or higher in 2022.
The expectation of higher interest rates and home prices plays a role. Almost 85 percent of the first-time owners believed home prices would stay the same or increase in the next 12 months, and a slightly higher percentage felt the same about mortgage rates.
Repeat homeowners were far less reliant on gifts or personal loans, but their need was also growing and not shrinking. While less than five percent needed outside cash to buy their current home, 20 percent of active shoppers said they wouldn’t qualify without gift money or a private loan. Another 15 percent said they weren’t sure if they would or not.
The Dig Insights survey, undertaken by Inman, found additional evidence of the hurdles presented by today’s high-priced, high-rate environment. According to the findings:
- Regardless of tenure, 27 percent of homeowners said they couldn’t afford their current housing payment and were falling further into debt.
- Almost 40 percent of those likely to buy in the next year could not afford to pay their new housing payment and existing mortgage/rent for more than two months.
- Seven out of 10 renters agreed with the statement(s) “If home prices/mortgage rates don’t fall, I’m scared I will never be able to buy a home.”
Headlines often describe the historic amount of home equity metaphorically sitting in millions of American homes, waiting to be activated through a sale or refinance. The Board of Governors of the Federal Reserve System data shows nearly $32 billion of equity across the United States entering the third quarter of 2023, just shy of last year’s all-time high.
First American Financial Corporation economist Ksenia Potapov, who recently investigated the importance of homeownership in wealth-building, found that the median homeowner has 38 times the household wealth of a renter.
“Despite the risk of volatility in the housing market, homeownership remains an important driver of wealth accumulation,” wrote Potapov in First American’s Housing Market Trends Blog, “and the largest source of total wealth among most households.”
Over 70 percent of renters surveyed agreed with the statement “I think owning a home is one of the most important things a person can accomplish,” while 41 percent responded affirmatively to “I don’t think homeownership is important for building wealth.”
“While the bank of mom and dad will help,” said Miami Association of Realtors Chief Economist Gay Cororaton, “the real and widespread solution is a systemic effort to assist first-time buyers with making that downpayment.”
