Fewer Americans are buying homes these days, but most believe now is a good time to try. What’s stopping them? They don’t have the money for a down payment or closing costs — and all the chatter from Washington, D.C., about requiring buyers to put 20 percent down makes many people fret they never will.
Proposals to eliminate the home mortgage interest deduction are equally troubling. Most people oppose eliminating the deduction and believe doing so would further damage the housing market and the overall economy.
Those are just some of the many revealing insights contained in the ninth annual Housing Opportunity Pulse Survey sponsored by the National Association of REALTORS® (NAR).
The challenge of coming up with a down payment and closing costs is nothing new. Every year, the Pulse Survey has shown it to be a leading barrier to homeownership — which makes any discussion of requiring higher down payments all the more worrisome. Anything that increases a barrier to homeownership is certain to create more headwinds for the recovery of the housing market.
The telephone survey of 1,250 adults nationwide, with an oversample of 250 interviews in the top 25 metropolitan statistical areas, was conducted earlier this year by American Strategies and Myers Research & Strategic Services. In the survey, 82 percent of the respondents said down payments and closing costs were either a huge (49%) or medium (33%) obstacle to homeownership. This was followed closely by lack of confidence in job security (80%) and having a job, but still not making enough to afford a place close to work (79%).
If down payments are already the biggest obstacle, the survey strongly suggests that raising the down payment requirement would be devastating. Four out of 10 homeowners (39%) said they wouldn’t have been able to purchase their current home if they’d been required to put 20 percent down to qualify for a mortgage.
Among people who identified themselves as working class, more than half (51%) said they would have been priced out of the market. The same was true for majorities of non-college graduates (51%), African Americans (57%) and Hispanics (50%). Among renters — a group that is critical to the housing market’s recovery — 77 percent said they’d be less likely to buy a new home if they had to put 20 percent down. Almost half (49%) said they’d be much less likely.
Four in 10 people (39%) said a down payment of Five percent or less is reasonable while 31 percent said a 10 percent down payment is reasonable. Only 25 percent thought a down payment of 15 percent or more is reasonable.
Besides the punishing impact it would have on individuals, nearly three-quarters of Americans (71%) said requiring a 20 percent down payment would have either a strongly negative impact (46%) or somewhat negative impact (25%) on the overall housing market.
The same number of Americans (71%) also thought the home mortgage interest deduction plays at least some role in driving the housing market — with 24 percent calling it a huge factor and another 18 percent calling it a pretty big factor. More than two-thirds of Americans (67%) oppose eliminating the deduction — with 51 percent saying they are strongly opposed.
The survey showed that the opposition spans the political spectrum as 70 percent of Democrats, 66 percent of Republicans and 65 percent of independents gave a thumbs-down to eliminating the deduction. Most believe it would harm not only the housing market (73%), but the overall economy as well (65%).
Although the dual threat of 20 percent down payments and elimination of the mortgage interest deduction casts a dark shadow, most Americans (73%) still believe buying a home is a good Financial decision. Two-thirds (67%) said now is a good time to buy. In addition, 72 percent of renters said owning a home is either one of their highest priorities (42%) or a moderate priority (30%) — up from 63 percent last year.
Why does homeownership matter? Providing a safe and stable environment for children and families ranked in a dead heat with building equity when respondents rated a list of reasons why it’s important to own a home. On a scale of 1-10, they both rated 8.4 followed closely by owning your home by the time you retire (8.3) and living in a neighborhood you enjoy (8.2).
There is, however, no denying that the housing slump and stalled economy are chipping away at people’s sense of optimism. The number of Americans who think buying a home is a good Financial decision has fallen 14 percentage points since 2007 (from 87% to 73%). Plus, more Americans thought it was a good time to buy when asked in 2009 than when asked in 2011 (75% to 67%). In addition, 47 percent of the people surveyed said foreclosures remain either a very big or fairly big problem in their area.
Local Survey Opens the Door to Affordable Housing Discussions
As debate swirls around key issues such as down payment requirements and mortgage interest deductions, research such as the Housing Opportunity Pulse Survey helps the NATIONAL ASSOCIATION OF REALTORS® make the case in Washington, D.C., for policies that support affordable housing.
Grants from the NAR are helping local REALTOR® associations such as the Eastern Connecticut Association of REALTORS® (ECAR) do the same thing closer to home. Earlier this year, the ECAR used $28,000 from the NAR to team up with a local nonprofit organization, the Southeastern Connecticut Housing Alliance (SCHA), to conduct a telephone survey examining the need for affordable housing in that area.
Right now many local zoning regulations discourage additional development based on fears that school systems can’t accommodate the growth, says John Bolduc, CEO of the ECAR. “That’s a misconception, though, because enrollments are actually declining,” he says. “The reason we did the survey is that we wanted to demonstrate to local officials and developers the need for affordable workforce housing in our region.”
The survey data still is being processed and has yet to be published, but results showed strong agreement among respondents that there is a shortage of affordable housing in their communities, says Nancy MacMillan, director of the SCHA. Underscoring that belief was the fact that the overwhelming majority of young adults said they were living with friends or family because they couldn’t find affordable housing.
Once the SCHA publishes the survey results on its website, the ECAR will link to them from its website. The two organizations also will set up meetings with local officials to discuss the results. One of their specific goals is to encourage greater use of a state law that rewards cities financially for allowing higher density to construct affordable housing.
“The survey will help us show that the people out there say there’s a need for it,” Bolduc says.