Mortgage rates are near record lows, employment is improving and rents are pricey. So why aren't more renters taking the plunge into homeownership?
Renters are avoiding buying a home mainly because house prices are soaring. Just 52 percent of renters surveyed in a National Association of Realtors quarterly report said they feel now is a good time to buy — that is down from 62 percent of those surveyed one year ago.
"Paying more in rent each year and seeing home prices outpace their incomes is discouraging, and it's unfortunately pushing homeownership further away – especially for those living in expensive metro areas on the East and West Coast," said Lawrence Yun, chief economist for the Realtors.
Current homeowners, however, have a much higher level of confidence in the market, with 80 percent of respondents saying now is a good time to buy a home — that was unchanged from a year ago. The confidence spread between renters and owners is simple: it is not a great time to buy if you have nothing to sell.
More owners, 71 percent, think selling is a good idea today, up dramatically from 61 percent a year ago. There is so little supply on the market that homes are selling at the fastest pace on record. Great, if you're a seller, but it begs the question: Why are so few homeowners listing their homes?
"They're either content where they are, holding off until they build more equity, or hesitant seeing as it will be difficult to find an affordable home to buy," said Yun. "As a result, inventory conditions have worsened and are restricting sales from breaking out, while contributing to price appreciation that remains far above income growth."
Affordability is the culprit for both current renters and homeowners. Less than half of all respondents said homes are affordable for buyers. Of course, there are regional differences, with more saying homes are affordable in the Midwest and less saying so in the West.
The survey puts an exclamation point on why homes sales were less than robust this past spring. Sales of newly built homes, which are more pricey than comparable existing homes, are faring the worst. In fact, the median price of a new home hit a record in May. Sales are up slightly this year, but not as much as they could be, given the high demand and low inventory of existing homes for sale.
Demand for home loans has weakened considerably, to the lowest level in two years, even though lenders say they are easing underwriting standards, according to another quarterly survey from Fannie Mae. The government-backed mortgage giant also reported a drop in the share of consumers who think now is a good time to buy — to a record low. On the flip side, lenders are looking to further ease standards in order to attract business.
"Expectations to ease credit standards climbed to survey highpoints in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Easing credit standards might also be due in part to increased pressure to compete for declining mortgage volume."
Additionally, changes to Fannie Mae, Freddie Mac and FHA underwriting standards set to take place in July should open the door for more borrowers and more lending business.