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Survey Shows Anxiety Over Housing Market

Tuesday, June 12, 2018

From Builder

A new survey from online lender and FDIC-insured bank Laurel Road out Monday reports that 10 years after the 2008 housing crisis, college-educated Americans eye the housing market with caution, as more than half (53%) of Americans who have or plan to buy a home admit they're concerned about their ability to afford a home in the current market. The findings also reveal that Americans on average believe a similar housing crash will occur in the next five years, and nearly one-fifth of respondents anticipate a crash in less than one year.

The survey reports the down payment is often considered one of the biggest barriers to affordability, but nearly half (46%) of Americans are currently unfamiliar with alternative downpayment options. Similarly, the National Association of REALTORS found that in 2017 the median downpayment for first-time buyers was 6% of the total home price for three straight years, but nearly three in five respondents (58%) plan to put down a traditional 20% downpayment, while 42% feel they would need to tap into other means, such as mortgage insurance (14%). The survey found that women in particular are potentially underestimating affordability, as they are significantly less likely than men (49% vs. 59%) to be familiar with the alternatives.

More than one-third (35%) of respondents – and 46% of Millennials – do not feel confident they could currently afford a 20% downpayment. Women (45%) feel particularly less confident than men (24%), while more than two-fifths (42%) of student loan carriers do not feel confident.

The survey revealed that Americans think mortgage interest rates in the U.S. will reach 6%, on average, by the end of the year, while the Mortgage Bankers Association expects a more modest 4.6%. Interestingly, Millennials (70%) are the most concerned about the impact of rising rates, compared to 60% of Gen Xers and 35% of Boomers. Compared to Boomers (78%), Millennials (53%) are less likely to think it's best that others pull the trigger and buy now, suggesting those that are more likely to be buying their first home are apprehensive about purchasing decisions.

The majority of people (74%) who have bought, or plan to buy, a home would only accept an interest rate of less than 6% before they decided not to move forward with a purchase. However, a lack of historical context may contribute to this sentiment. Americans believe the highest U.S. mortgage rates have ever reached was 12.25%, on average. In reality, rates have exceeded 18% – a fact only 8% of Americans know.

“Purchasing a home is a life-changing decision, yet despite the range of resources, people often aren't aware of the personalized options available to fit their specific situation,” said Alyssa Schaefer, chief marketing officer of Laurel Road. “By arming future homebuyers with the knowledge and support needed to make an informed and confident decision, we are committed to empowering our customers during the homebuying process. Ultimately, through our research and evolving product set, our mission is to meet our consumers where they need us most, by providing an exceptional experience across each major financial milestone.”

Additional findings include:

  • Setting timelines: Americans estimate they will buy a home in the next six years, on average. First-time homebuyers plan to purchase a home in just two years – at age 36, on average. Concern may even play a role in buying patterns, as 62% of those who are concerned about affordability are currently looking or plan to buy in less than five years, compared to 33% of those who aren't concerned.
  • Planning ahead: Among Americans who have ever bought, or plan to buy, a home, 85% have plans for their savings if they refinanced their mortgage.
  • 48% would put it into savings
  • 41% would pay off debt, such as credit cards or student loans
  • (50% of Millennials vs. 45% of Gen X and 32% of Boomers)
  • 27% would remodel their home
  • Spurring action: Among current and prospective homeowners, nearly one in three (32%) is more likely to refinance their home, specifically because of the potential for a future rate hike.

The Laurel Road survey was conducted by Wakefield Research among 1,000 nationally representative U.S. college-educated adults, with 50% of respondents who have a graduate degree, between April 11 and April 18, 2018.

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