Home sales being restrained by real and imaginary obstacles

What’s holding back home sales?

We closed out 2016 with 90 percent of homeowners and 80 percent of non-homeowners maintaining a favorable view about homeownership, indicating that owning a home is part of the American Dream, according to a National Association of Realtors (NAR) study, so what’s holding the market back? And why are non-owners currently saying they are less optimistic about now being a good time to buy (down to 55 percent in Q4 from 66 percent in Q1)?

Home sales rose 3.8 percent in 2016, reaching a 10-year high, but NAR reiterates that affordability pressures, tight inventory levels, and student debt are preventing future homeowners’ aspirations.

The NAR study adds that possible confusion about down payment requirements is a new contributing factor holding buyers back.

NAR’s Aspiring Home Buyer Profile analyzed 2016 quarterly survey data from its Housing Opportunities and Market Experience (HOME) survey to capture movements in the housing expectations and sentiment of homeowners and non-homeowners – both renters and those living with a family member. It found real obstacles (affordability, inventory), but also perceived obstacles (down payments) as holding back home sales.

Wanting a home vs. being able to buy one

Lawrence Yun, NAR Chief Economist, says the desire to own a home and the ability to do so are not on the same wavelengths for many households.

“Nearly all non-homeowners said they want to own a home in the future (87 percent), but it’s evident that higher rents and home prices – up 41 percent in the past five years – along with limited entry-level supply and repaying student debt have combined to make buying a challenging goal,” he said.

“It’s also little surprise that non-owners in the West – where price appreciation has been the strongest – were the least optimistic about buying,” Yun added.

Student debt causing delays in purchasing

Affordability was the top reason non-owners said they don’t own, and NAR’s analysis reveals that carrying student debt is causing many non-owners to delay purchasing a home. Of the 39 percent of non-owners who said they have student debt, three in five said they are “not very” or “not at all” comfortable taking on a mortgage.

[clickToTweet tweet=”STUDY: Many young adults putting off marriage, starting a family, buying a home due to student loan debt.” quote=”“In addition to having to postpone important milestones such as getting married and starting a family, many young adults are financially falling behind previous generations in part because of having to prioritize repaying their sizeable student loans over buying a home and saving for retirement,” said Yun.”]

Add to the weight of student debt the lagging confidence due to confusion surrounding down payments, and you have a recipe for home sales being restricted by real and imaginary obstacles. NAR studies note that the median down payment for first-time buyers has been 6.0 percent for three consecutive years, and 14 percent for repeat buyers in three of the last four years.

Yet 87 percent of non-owners surveyed believe a down payment is 10 percent or more.

“Current non-owners’ ultimate goal of owning a home may not be as far-fetched as they believe,” said NAR President William E. Brown. “There are mortgage options available for creditworthy borrowers with manageable levels of debt and smaller down payments. Those interested in buying their first home in 2017 should review their finances, sit down with a lender to see if they qualify for a mortgage and find a Realtor® to help them get started on their home search.”

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