A newly released survey of 1,000 nationally representative U.S. college-educated adults reveals that today’s housing and financial environment is impacting home-purchasing decisions. According to the survey—conducted by Wakefield Research for the national online lender and FDIC-insured bank Laurel Road—Americans are eying the housing market with caution, with more than half (53 percent) who have or plan to buy a home saying that they’re concerned about their ability to afford housing in the current market. The findings also revealed that Americans, on average, believe a housing crash similar to the one in 2008 will occur during the next five years, with almost one-fifth of respondents anticipating a crash in less than one year.
The survey examines how misconceptions and unclear options are inflating anxieties when it comes to housing market decisions. For example, the down payment often is considered one of the main barriers to affordability, but nearly half (46 percent) of Americans are unfamiliar with alternative down payment options. Similarly, the National Association of Realtors found that, in 2017, the median down payment for first-time buyers was 6 percent of the total home price for three straight years. However, almost three-in-five respondents (58 percent) plan to put down a traditional 20-percent down payment, while 42 percent feel they would need to tap into other means, such as mortgage insurance (14 percent). The survey found that women, in particular, are potentially underestimating affordability, as they are significantly less likely than men (49 percent versus 59 percent) to be familiar with the alternatives. This lack of knowledge around alternative options potentially contributes to the fact that more than one-third (35 percent) of respondents—and 46 percent of millennials—do not feel confident that they could afford a 20-percent down payment. Women (45 percent) feel particularly less confident than men (24 percent), while more than two-fifths (42 percent) of student loan carriers do not feel confident.
A knowledge gap also surrounds current interest rates. The survey revealed that Americans think mortgage interest rates in the U.S. will reach 6 percent, on average, by the end of the year, while the Mortgage Bankers Association expects a more modest 4.6 percent. Interestingly, millennials (70 percent) are the most concerned about the impact of rising rates, compared with 60 percent of Gen Xers and 35 percent of boomers. Compared with boomers (78 percent), millennials (53 percent) 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. In summary, these findings suggest consumers are concerned and cautious about housing decisions in the current market, despite the fact that interest rates are historically low. In fact, the majority of people (74 percent) who have bought, or plan to buy, a home would only accept an interest rate of less than 6 percent before deciding 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 percent, on average. In reality, rates have exceeded 18 percent—a fact only 8 percent of Americans know.
Here, some additional findings from the study:
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 percent of those who are concerned about affordability are currently looking or plan to buy in less than five years, compared with 33 percent of those who aren’t concerned.
Planning ahead: Among Americans who have ever bought, or plan to buy, a home, 85 percent have plans for their savings if they refinanced their mortgage. Forty-eight percent would put it into savings; 41 percent would pay off debt, such as credit cards or student loans (50 percent of millennials versus 45 percent of Gen X and 32 percent of boomers); and 27 percent would remodel their home.
Spurring action: Among current and prospective homeowners, nearly one in three (32 percent) are more likely to refinance their home, specifically because of the potential for a future rate hike.