Why Renters Can’t Afford to Buy a Home

HOUSTON – (By Dale King, Realty News Report) – Lots of renters want to buy a home. Lots of them can’t. The main impediments are financial, says a new report from Redfin, the tech-powered real estate brokerage. Thirty percent of renters say they’re unable to save for a down payment while 45 percent say debt is preventing them from buying a home.

The almighty buck – or lack of them – is having a personal and generational impact on people looking to advance into the residential ownership category, says the analysis.

“A lot of American renters want to buy a home, but they’re stuck renting because it’s simply too expensive to break into the housing market,” said Redfin Chief Economist Daryl Fairweather. “That’s especially true since they’re often competing against investors or other deep-pocketed individual buyers.”

“Unfortunately,” she added, “the fact that buying a home is out of reach for so many Americans is a driver of inequality. Not owning a home means not benefiting from rising home values, one of the main ways to create and pass down generational wealth in this country.”

But there is hope for those who feel they are terminally destined to live in leased quarters.

“The housing market is seeing early signs of a cooldown, which could benefit first-time homebuyers,” Fairweather said. “Mortgage rates are rising fast, which is a double-edged sword. Higher rates mean higher monthly mortgage payments, but they will also eventually ease competition for homes, [resulting in] fewer houses selling above their asking price.”

The overall report is based on a Redfin-commissioned survey of 1,500 U.S. residents who currently rent the home they live in and/or are looking for a rental. Respondents had the option of selecting more than one response.

In fact, participants asked why they currently rent rather than own their home produced more than a dozen replies. Among them were:

Can’t afford to own a home where I want to live, 32 percent.
Can’t save the down payment for a home, 30 percent.
My rent is a really good deal and buying would be more expensive, 20 percent.
Can’t find a home that I want to buy, 17 percent.
Mortgage rates have risen too high, 16 percent.
Don’t want the burden of home maintenance, 15 percent.
I like where I’m living now, 15 percent.

Redfin said the housing market “is unaffordable for many prospective first-time buyers largely because home prices have shot up since the start of the pandemic, with remote work and last year’s record-low mortgage rates leading to a boom in demand. Homes are 34% more expensive than they were before the pandemic started, and would-be buyers have half as many homes to choose from.”

The study notes that U.S. rental prices are also soaring, with the average monthly asking rent up 15 percent year-over-year in February to $1,901.

The survey also asked renters what financial obstacles kept them from trying to purchase a home. They came up with 10 answers that included:

Debt (credit card, student loan, medical, automobile, etc.), 45 percent.
Home prices too high, 44 percent.
Not having enough income to save, 38 percent
Low credit scores, 35 percent.
Financial setbacks due to the pandemic (i.e., job or wage loss), 23 percent.
High cost of rent, 23 percent.
Childcare costs, 7 percent.
Saving up for a wedding, 3 percent.

Twelve percent said financial obstacles “are not keeping me from buying a home.” A total of 56 percent of respondents said they’re not planning to make any compromises or sacrifices to save for a down payment or buy a home.

Renters planning to move were asked for their motivation, and the survey found a few noteworthy patterns. While the most common reason to move was upgrading to a better home (29 percent) and to be in an area with lower rent (20 percent) or a lower cost of living (18 percent), a surprisingly large share said they were moving for reasons outside of their own volition. Eleven percent said their landlord is selling, and 10 percent are moving because their current rental doesn’t have adequate heat, hot water, electricity, etc.

Six percent are moving because their landlord is terminating their lease.

Finance guru Fairweather said “paying down debt can make it difficult to produce a down payment and/or monthly mortgage payments, especially now that home prices have shot up. Plus, homebuyers with a lot of debt can have trouble getting approved for a mortgage.”

“But buying a home can still be a sound financial decision, even with significant debt. Rising home equity can even help pay off debt down the line.

“Debt doesn’t have to be a curse,” Fairweather said. “My advice for aspiring homeowners is to make a monthly budget and add debt to their expenses along with things like gas, groceries or entertainment. Saving for a down payment should be another line in the budget, keeping in mind that there are mortgage options like FHA loans that require little to no money down.

This spring mortgage rates have risen significantly. Freddie Mac reported the 4.72 percent average 30-year fixed rate mortgage for the week ending April 7 was up from 4.67 last week. A year ago the average was 3.13 percent.

Fairweather added: “Would-be buyers should also get preapproved for a mortgage to find out how much they can realistically spend on a monthly basis, and add that to their budget, too.”

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File: Affordability. Why Renters Can’t Afford to Buy. Redfin.