Home prices are far outpacing growth in household incomes, prompting changing perceptions and habits among both buyers and renters.
With more renters thinking home buying is out of reach, Freddie Mac suggests real estate industry professionals can play a crucial role in raising awareness of the upsides of home ownership and the tools to assist with every step of the process.
A comparison of home prices dating to 1960 shows median prices rose 121% nationwide, while median household income increased only 29%. Renters didn’t fare much better, as gross rents jumped 72%, about 2.7 times more than incomes. Such gaps make saving for a future home difficult, concluded researchers who conducted the study.
While the disparity between home prices and income present significant challenges for potential homeowners, a new survey from Freddie Mac underscores some upsides for owners.
For example, 34% of renters spend more than a third of their income for housing, while only 25% of owners dedicate that portion to housing. Homeowners, when compared to renters, also report fewer changes in spending to keep up with payments.
When asked if they’ve made housing or spending changes to afford monthly housing payments, more than half the respondents (51%) said yes. However, among renters, 62% said they made spending changes, while only 47% of owners admitted doing so.
For renters, the cutbacks over the past two years have taken various forms: 55% said they have reduced spending on non-essential items, such as entertainment and 42% spent less on food, utilities and other essentials; for owners 33% cut expenditures for essentials.
More than a third of renters (35%) who reported affordability challenges said they moved to find a more affordable place to live, up nine points from a year ago.
A significant majority of renters – 82% – view renting as more affordable than homeownership, a jump of 15 points from February 2018, and an all-time high.
Renters say down payments and closing costs are a persistent obstacle to homeownership. Nearly nine in ten (88%) of low-income renters said having money these upfront costs would be a barrier if they were considering purchasing. Middle-income rents also indicate the same challenge, but by a smaller ratio (72%).
A comparison of renters by generations shows similar concerns: 80% of millennials, 81% of Gen Xers and 71% of baby boomers perceive not having sufficient funds for a down payment or for closing costs.
Student loans and child care costs are also influencing housing choices, particularly among millennials and those who are part of the “essential workforce,” such as being employed in positions in healthcare, education and law enforcement.
The expectation that mortgage payments would exceed rents is also rated as a major obstacle of homeownership by 40% of renters, but the survey revealed sharp gender gaps. Female renters were significantly more likely than their male counterparts (48% vs. 28%) to say high mortgage payments would be a major obstacle for them.
In its “Profile of Today’s Renter & Homeowner,” representatives from Freddie Mac Research suggested mortgage professionals “have a chance to be the bright side of first-time homebuyers’ experience.”
“Reaching beyond the tough headlines and reminding them that financial security and a real milestone may be closer than the news may indicate,” they stated. Along with educating would-be buyers about the tangible upsides to homeownership, lenders and other industry professionals can offer guidance and tools to aid the search and buying process. Specific tools from Freddie Mac include:
- An online financial educational site with “CreditSmart®” tools and information for prospective homebuyers.
- Low down payment options, such as Freddie Mac’s Home Possible mortgage for qualified borrowers.
- A consumer-focused resource center featuring tools, resources, and information on renting, purchasing and owning a home.
- Automated assessments for borrowers lacking a credit score.
- Automated home valuations and Freddie Mac’s “risk reduction toolbox” to simplify the home buying process and potentially reduce borrower transaction costs.
Freddie Mac commissioned Harris Insights & Analytics to conduct the research for its latest “Profile” report. The firm collected data from more than 4,000 online respondents over the age of 18. Those polled over a four-day period in April included homeowners, renters and a small portion of “others.” Data were weighted to reflect the composition of the US adult population