Even as existing-home sales nationwide increased 3.8 percent to a 10-year high in 2016, affordability pressures, student debt and a possible confusion about down payment requirements prevented many aspiring homeowners from reaching the market, according to the National Association of Realtors (NAR). Many would-be buyers are unaware that there are down payment assistance programs and mortgage options that may help them reach their goal.
According to NAR's "Aspiring Home Buyer Profile," which analyzed 2016 quarterly data from its "Housing Opportunities and Market Experience" survey, majority of people continue to have a favorable view of homeownership. Over 90 percent of homeowners and roughly eight out of 10 non-homeowners indicated owning a home is part of their American dream.
Despite these positive feelings about owning a home, the percent share who believed it was a good time to buy declined from 63 percent in the first quarter to 55 percent in the fourth quarter. The share of homeowners who thought it was a good time to buy also dipped as the year progressed, but hovered at around 80 percent each quarter.
Lawrence Yun, NAR chief economist, said the desire to own a home and the ability to do so are not in sync for many households. "Nearly all non-homeowners said they want to own a home in the future (87 percent), but it's evident that higher rents and home prices - up 41 percent in the past five years, along with limited entry-level supply and repaying student debt have combined to make buying a challenging goal," said Yun.
Student debt appears to be one reason many non-owners are delaying their home purchase. Of the 39 percent of non-owners in the second quarter survey who said they have student debt, majority (59 percent) indicated they are not very or not at all comfortable taking on a mortgage. These findings align with a separate NAR study last year that revealed nearly three-quarters of non-homeowners who are employed and repaying their student loans on time believe their debt is stymieing their ability to purchase a home, with slightly over half of borrowers expecting to be delayed by five or more years.
Apparent confusion about down payment requirements may also be the reason behind non-owners' lagging confidence about buying. NAR's "Profile of Home Buyers and Sellers" has shown that the median down payment for first-time buyers has been 6 percent for three straight years and 14 percent for repeat buyers in three of the past four years. However, when asked about the amount of a down payment needed to purchase a home, 87 percent of non-owners indicated a down payment of 10 percent or more is necessary.
Denise Welsh, president of the Silicon Valley Association of Realtors, suggested first-time home buyers should talk to their Realtor and explore options for down payment assistance in their area because many are not aware this assistance is available. She indicated Realtors are pushing for legislation that would enable those with student debt to refinance at lower rates and hope the high loan balances are de-emphasized in calculating the debt ratios.
"We are addressing this issue in the hope that every qualified individual has a fair chance at homeownership and the stability it affords them," said Welsh.
There are also a number of mortgage options available for creditworthy borrowers with manageable levels of debt and smaller down payments. Realtors advise first-time buyers to review their finances, sit down with a lender to see if they qualify for a mortgage, and find a Realtor to help them get started on their home search.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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