Down payments are holding back renters from entering the housing market, according to a report from Zillow. Zillow’s Housing Aspirations Report found that 70 percent of renters across the country are find high down payment costs to be the top roadblock to homeownership.
Mortgage payments tend to be considerably cheaper than a rent payment on a monthly basis. In the majority of cities surveyed by Zillow, mortgage payments are cheaper than a monthly rent payment. However, high down payment costs hold many renters back. Other barriers include debt and loan approval, as just over half of renters said qualifying for a mortgage or debt is holding them back from buying a home. Another 40 percent of renters are held back by job security.
As millennials, the largest generation of Americans, are beginning to buy homes, the falling homeownership rate is due to react positively. The high cost of rent could boost homeownership as well, as rent can cost 50 percent of the median income in many cities. Coupled with the low mortgage costs compared to high rent, homeownership may be set to boost.
More than half of all renters are confident that they will be able to afford a home one day. A quarter of renters are even planning on buying within the next three to five years. Of all generations, millennials are the most confident about homebuying, as 34 percent are planning on buying within the next five years.
"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 Dr. Svenja Gudell. "Rising rents are also a factor—it's extremely difficult to save when you're paying record-high rents. While it is possible to put down as little as 3 percent on a home, the trade-off is a higher interest rate and costly private mortgage insurance, a financial tradeoff that may make sense for some buyers. But with interest rates rising in 2017, it's important to remember that a lower interest rate can save buyers thousands of dollars over the life of their loan.”