Young adults are still struggling to buy homes
September 16, 2014
It's still a difficult market for young adults looking to make their first home purchase, as many prospective buyers continue to sit on the sidelines and rent. One of the biggest obstacles young homebuyers face when looking for a home is acquiring a mortgage, according to Anthony Hsieh, founder and chief executive of LoanDepot.com.
“More than 90 percent of all loans today have support from the federal government, compared to 40 percent of all loans in 2003,” Hsieh told The Washington Post. “This means that there's a lack of creativity and a lack of selection of loan programs that could help first-time buyers.”
Many young adults are still struggling to buy a home.
Regardless of rent prices going up in many regions across the U.S., a large portion of young buyers simply don't have the means to purchase residential property. It's an alarming trend because renters spent 30 percent of their incomes on rent in the first quarter of 2014, according to Zillow, which stated that percentage could be much more in high-cost cities in thriving urban markets.
“While higher rents are an incentive to buy, renters also have a harder time saving up for a down payment,” Stan Humphries, chief economist for Zillow, told the Post.
Not enough cash for a home
The Federal Reserve Bank of New York recently conducted a survey of 344 renters and 867 homeowners. Not surprisingly, the top reason for choosing to rent rather than buy came down to financial reasons.
For renters who said they had less than a 60 percent chance of owning a home in the next three years, the survey asked what was the biggest obstacle for owning a home. Nearly 56 percent of respondents said they carried too much debt and not enough savings. The next most common answer was not making enough money, with nearly 52 percent of respondents claiming this. The survey allowed for multiple answers, and the third most frequent response for choosing to rent rather than buy boiled down to poor credit: More than 40 percent of respondents didn't think their credit was good enough to acquire a mortgage for a home.
“The pendulum has shifted from fast-and-loose to too-tight mortgage lending standards, and at the same time, the economy is not conducive for young renters to become buyers,” Nela Richardson, chief economist for Redfin, told the Post. “Labor force participation among young people is lower than normal and even those that are working are hurt because median income has stagnated while prices have risen.”
Lawrence Yun, chief economist for the National Association of Realtors, added the average young person is waiting to get married and staying in school longer. Both of those factors tend to delay the home purchasing process. The Census Bureau reported the median age for men to marry in 2013 was 29, up from 26.5 in 1993. Women are also waiting to get married, as the median age for a women to be married in 2013 was 26.5, two years older than the median in 1993.
Looking on the bright side
Current homeowners who plan to move in the next three years seem very confident they will purchase another home rather than rent, according to a survey from the New York Fed.
While only 22 percent of homeowners plan to move in the next three years, 75 percent of those respondents said they would buy another home at the time of their departure. Homeowners considering a move should consider the insurance options offered by SelectQuote Auto & Home. SelectQuote provides comparison shopping from a dozen of the nation's top-ranking insurers, providing customers with a wide variety of rates and policies to suit their needs.
When renters finally choose to buy a home, they must consider closing costs, taxes and home insurance in addition to their down payment and monthly mortgage fees.