Despite the fact that home price gains have relatively slowed and mortgage rates are at record lows, a large number of Americans continue to rent homes rather than buy one, even if renting is more expensive than paying off a mortgage. The Federal Reserve Bank of New York explains why the trend of renting is so hot right now.
A recent report by Zillow, 30% of a tenant's income goes towards a lease when compared to the 15 percent a homeowner contributes towards a mortgage payment. But Americans, especially the younger generation, is yet choosing to rent.
To understand this trend, The Federal Reserve Bank of New York surveyed 344 young renters to find that though these people would love to own a place of their own, there are several hurdles that are keeping them from achieving their property goals.
Below are some reasons for their preference towards renting:
- 55.7% said they don't have enough money or have too much debt
- 52.7% said they don't have the right income to support a mortgage.
- 41.4% said they don't have good credit scores.
- 28.6% said they want a simpler lifestyle and want to avoid the "upkeep" of homeownership.
- 24.1% do not like the idea of being restricted to an area.
- 23.6% think it is cheaper to rent than to buy.
- 18.7% do not want to invest in a home at all.
One of the major reasons was availability of mortgages. Almost two thirds of the people surveyed said that they would find it difficult to qualify for or obtain a home loan.
The survey also found many people saying they don't want to own because they expect home prices to fall further.
Previously, experts had pointed out that buyers are waiting for home prices to fall further before making a purchase decision. Also, the economy and jobs report are going to play a major role on buying activity.
And though interest rates are low, access to credit is tight because lenders aren't ready to risk another dent in their finances while the economy recovers.
The surveyors noted that there are "many potential buyers with relatively low credit scores" and that they "might now be discouraged, meaning that they are convinced that they would not be granted credit and thus may fail to apply for a mortgage even after an easing in standards."
But, they acknowledge that if lending standards were loosened too much, another financial windfall could come up and that could prove dangerous for the economy.