Nearly 70% of renters say they can’t buy a home due to the expensive down payment, despite the fact that a monthly mortgage payment might be cheaper than rent, according to the first Zillow Housing Aspirations Report, released Wednesday.
Two-thirds (67.9%) of renters nationwide cite saving for a down payment as the biggest hurdle to buying a home; 53.2% also mention qualifying for a mortgage as an obstacle; 50% say debt is holding them back; and 38.5% call out job security.
Though there are many perceived barriers to entry, 63% of renters say they’re confident they'll be able to afford a home someday, with 25% planning to buy in the next three to five years.
The majority of respondents (66%) say they believe owning a home is necessary to living the American dream, and 72% say they believe owning a home increases their standing in the local community.
Zillow notes that low mortgage rates make homeownership an attractive financial option for many current renters, but that the down payment scares many would-be buyers off.
Put It Down
Each demographic group cites the difficulty of affording a down payment as the top barrier to homeownership, but the percentage is higher among women (72.2%) than men (62.2%).
Millennial renters are more likely than Gen X and baby boomer/silent generation renters to note down payment woes, at 69.2%, 68.5%, and 64.3%, respectively.
“Given the many hurdles that need to be cleared before successfully buying a home even in the best market conditions, it might be somewhat surprising that down payment concerns resonated so strongly with respondents,” Zillow states in its report. “But in the order of operations that is buying a home, it all starts with securing a down payment, which will help determine a final budget, which will lead to actually finding a home within that budget to purchase, and, finally, to securing a mortgage and going to closing.”
As home prices continue to climb, it’s getting more difficult for renters to save toward a down payment. While rising prices are generally good for the overall economy and current homeowners, they can discourage a renter who can save up enough to put down a decent amount in their price range, only to find that the home they eyed has appreciated in value beyond their means, Zillow notes.
San Jose, Calif.; San Diego; and Los Angeles had the greatest share of renters say affording the down payment is the No. 1 obstacle to owning, each at over 72%, which is of little note when considering the rent costs in those markets.
“With home values close to record highs, it’s no surprise renters are concerned about coming up with enough money to buy a home,” said Zillow chief economist Svenja Gudell in a release. “Rising rents are also a factor—it’s extremely difficult to save when you’re paying record-high rents.”
In 2016, typical U.S. household incomes grew 2.2%, a decrease from growth of 3.3% in 2015. The mortgage payment on the average U.S. home, on the other hand, grew by 9.9% in the fourth quarter of 2016, up from 6.7% a year prior. “In other words, rising mortgage interest rates and continued home value growth helped make mortgages less affordable by the end of 2016 than they’ve been in half a decade—a trend likely to get worse,” Zillow states.