We’ve previously reported that a growing number of renters plan on staying renters, even if rental prices increase (for the time being, at least). And now, a new report is giving us some insight as to why.
According to the first-ever Zillow Housing Aspirations Report (ZHAR), nearly 70 percent of renters across 20 United States metropolitan areas say they can’t buy a home due to the cost of a down payment. In fact, most renters see a down payment as the biggest barrier to homeownership, ahead of debt, qualifying for a mortgage, job security, or not being in a position to settle down.
In our own metropolitan area, 67.5 percent of renters see down payments as their greatest roadblock, followed by debt at 54.6 percent, qualifying for a mortgage at 49.3 percent, job security at 35.2 percent, and not being in a position to settle down at 19.3 percent.
While 20 percent down is the historical standard for a down payment on a home, home buyers can put down a smaller amount. However, Zillow’s chief economist, Svenja Gudell warns that this could have repercussions of its own.
“The typical home in the Philadelphia metro is worth $215,400,” she says. “A 20 percent down payment would be $43,080. A 10 percent down payment would be $21,540. But, buyers who put down lower down payments will probably also have higher mortgage rates and have to pay mortgage insurance, so they should take those extra costs into consideration.”
Interestingly enough, though, the report states that millennial renters are confident they will be able to afford a home someday, and 66 percent believe owning a home is a crucial part of the American Dream – only 2 percent said they never plan to buy a home.
So, how can renters balance paying off their debt and paying for their current rent while simultaneously saving for a down payment? Cutting down spending costs and budgeting, according to Gudell.
“Renters are in a tough spot right now – high rents make it a lot harder to save for a down payment and move into homeownership,” she says. “Budgeting will be important. If renters want to also save up for a down payment, they should consider what they can cut to start building up that initial cost. For example, can they find a roommate to share rent? Eat out less often? There are tradeoffs that can be made, but they should be realistic and recognize that it may take a few years.”
Regardless of how long it takes to get there, homeownership is still highly valued to many Americans. Gudell sees a positive future for renters.