Why is renting perceived as the more affordable option?
A home is the first appreciating asset most Americans will own and the first step many will take toward building wealth. With rents skyrocketing around the country, the average monthly mortgage payment is typically less than the average monthly rental payment in most regions. According to a new Freddie Mac report, 67% of renters continue renting because they believe it is more affordable than buying a home.
Executive Vice President and Head of Freddie Mac Multifamily, David Brickman, explained, “Perceptions of affordability and cost continue to play an outsized role in the choices of America’s renters, as they overwhelmingly see renting as more affordable and the right choice for them right now.”
Based on Freddie Mac’s survey, 74% of millennial renters plan to continue renting because of financial reasons. One of the most significant financial obstacles renters face is saving for a down payment. Zillow estimates that to save a 20% down payment, the average household would have to save 10% of their household income annually and based on that rate, “single earners would take more than 12 years, while partners with one income would take six to 8.5 years, and partners with two incomes would take 3.6 to 4.9 years.”
However, the 20% down payment is a conservative estimate. Many loan programs offer low down payment or flexible down payment options. Down payment assistance and grant options are also available in many areas, especially for first-time home buyers. Down payment crowdfunding with CMG Financial’s HomeFundIt™ is another way for perspective home buyers to grow their down payment.
A growing number of renters are also dismissing homeownership altogether. From Brickman, “Remarkably, half of Baby Boomers who rent do not anticipate owning a home in the future, with a growing number of Generation Xers following suit. Indeed, we are witnessing a historic shift in preference among older Americans, as they increasingly are choosing the size, convenience and affordability that renting offers over ownership.”
One fact remains true, as home values continue to appreciate. Homeowners are continuing to build equity while renters are not. Before making the switch from renting to buying, it is best to consult a mortgage professional and weigh your financial options.
Sources: Freddie Mac, National Mortgage Magazine, Zillow