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Study: Millennials face three housing roadblocks


Researchers at the Urban Institute say there are three root causes behind what’s been ailing the sluggish housing market: tight credit, eroding affordability and a lack of understanding about the wide-range of available downpayment assistance programs.

Urban researchers presented these three primary barriers to entry for first-time homebuyers and lower-to-moderate income buyers. The study was funded by Freddie Mac and Down Payment Resource, a private business that maintains a database of downpayment programs.

homebuyers(1)

The first barrier was a false perception among buyers that they need to put 20 percent down on a home, when the reality is that the median downpayment in 2017 was 5 percent. There are also more than 2,500 downpayment assistance programs around the country.

“In a 2017 survey, 68 percent of renters cited saving for a down payment as an obstacle to homeownership,” the study said. “Thirty-nine percent of renters believe that more than 20 percent is needed for a down payment, and many renters are unaware of low–down payment programs,” the report said.

Secondly, credit is still relatively tight. The median credit score of successful homebuyers in April was 738, which compares to 695 and 705 at the height of the last housing boom in 2005 and 2006, the study said.  Although lenders are allowing borrowers to carry more debt as debt-to-income standards have gradually loosened since 2013, the Urban researchers said  “credit availability continues to be a headwind for homeownership in most states.”

Lastly, affordability has eroded with the rise in home prices and higher mortgage rates. Although the market is still broadly affordable and buying is cheaper than renting in most markets, according to the study, weakening affordability is a factor holding back some buyers.

The study said that mortgage-ready millennials can still generally afford single-family homes in most metros, though affordability in high-cost regions “is threatened.”

“Because of home price appreciation in the past five years, national home price affordability, while still reasonable in a historical context, has declined,” the study said. “The decline would have been larger had it not been for the cushion provided by low interest rates, a cushion that is quickly eroding. If mortgage interest rates reach 5.1 percent, national affordability will return to 2001–03 levels.”  


 

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