NerdWallet 2018 Home Buyer Report

Home buying is a costly decision that can cause stress. With home prices that seem to be unaffected by inflation and a complicated purchasing process, it can be difficult to make a purchase.

According to a Harris Poll, 75% Americans still consider buying a house a priority.

NerdWallet used data from the December 2017 survey of over 2,000 adults in the U.S., along with the NerdWallet mortgage calculator and other sources, to create a snapshot of home buyer sentiments and concerns.

Renters are concerned about the cost of buying a home. Most renters cite financial reasons as their reason for renting, which is consistent with the survey. According to the National Association of Realtors, cost concerns are understandable as the median price of single-family homes has increased by 5.3% in the past year.

These financial worries are not stopping sales. Around 15% of Americans have purchased a home within the last five years and 32% plan to do so over the next decade. The survey found that both prospective and recent buyers are optimistic about the investment potential of their home. NerdWallet’s mortgage calculator also shows that users expect to put 20% down on their homes.

Survey results show that millennials (18-34 years old) are not counting themselves out for homeownership. They prioritize homebuying at higher rates than other generations. This contradicts the belief that they are uninterested to put down roots.

However, the results aren’t all good. Some Americans may not be fully aware of the costs and benefits of homeownership. While some believe that buying is cheaper than renting, this may be true in the long-term. However, homeowners should also consider ongoing costs such as maintenance, property taxes, and homeowners insurance. More than half of Americans say they would rather own an appreciation home than more money in retirement savings. This could be dangerous if they aren’t well-prepared to retire comfortably.

Tim Manni, NerdWallet mortgage expert, says that although the initial costs of homeownership such as the down payment or closing costs can be significant, it doesn’t end there. Prospective home buyers should not ignore the ongoing costs of ownership when deciding how much house they can afford. Your home is likely to become your biggest financial asset. You want to maximize that asset and make it grow. However, you should not neglect other fiscal responsibilities, such as saving for retirement or putting money away in an emergency fund span.

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  Nearly one third (32%) of Americans intend to purchase a home in the next five-years, while 15% have bought one within the last half-decade. Both groups say that “it will make a good investment” is their main motivation to buy a home over all else.
  

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  64% of Americans who choose to buy a home cite the fact that it is a good investment.
  

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  NerdWallet mortgage data show potential buyers are ambitious with their savings goals, intending to put about 20% down on average.
  

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  Only 17% of Americans prefer renting to homeownership. Many of their reasons for choosing renting are financial. 56 percent of those who choose renting to buying prefer renting to owning. 24% don’t want to make a financial commitment and 22% don’t like the idea.
  

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  According to the survey, 82% of millennials (18-34) consider buying a house a priority. This compares with 75% of Generation X (33-54) and 69% for baby boomers (55+). The survey also found that millennials want to own more homes in their lifetimes and are most likely say they would like to rent out a property to make extra income.
  

Although there were strong opinions expressed in 2017 by Americans across the table and in the media about the current economic and political climates, Americans are equally divided on how these factors will impact a 2018 home purchase. If asked if the current political and economic climate would affect their likelihood of buying a home in 2018, 35% answered that it was more likely, 35% answered less likely, and 30% said they weren’t sure.

Half (50%) Americans feel no better or worse about their ability this year to buy a house, based on their financial situation and availability of housing. The reason that 28% feel better is because they have greater savings, and 41% because of higher income. 57% of the 23% who feel worse cite less income, while 48% cite less savings.

To see why Americans feel better about their homebuying ability, click here

About one-third (32%) of Americans intend to buy a house in the next five year. Millennials are more likely to make such a purchase within their five-year plans (49% versus 35% for Generation X and 17% for baby boomers).

There are many reasons to purchase a home. “It’s my next step in life” is the most popular reason for millennials who plan to buy a home. This also applies to those who have bought in the last five years. Investment potential is a motivator for all generations. This includes both recent and prospective buyers.

According to the survey, 35% of Americans say that they currently rent their primary residence. However, 17% of respondents said they would prefer to rent to owning a home, regardless of their living situation. Tenants prefer to be tenants for financial reasons, which suggests that they may choose this option out of necessity over preference.

A third (33%) of Americans prefer renting because it is cheaper. But not all agree. Close to 30% of Americans who intend on purchasing a home in five years (31%) say that they plan on doing so because it is more affordable than renting. Nearly the same percentage (26%) who have bought a home in five years (26%) also cite this reason.

Takeaway for home buyers: Choosing whether to purchase a house or rent is not an easy decision. It can be as emotionally charged as it is financially. Rent vs. Buy calculators can help you to weigh the financial aspects of things. Remember that this is not a decision you will make for the rest of your life. A home is a long-term investment. However, the best decision now may be better than the one you make in five years. You can use this time to build your savings and credit and then revisit your decision later.

Manni states that some people believe renting is essentially “throwing away money” since “you’re not getting any in return.” Renting gives people freedom. Renting allows them to live in places like large cities where single-family homes are rare. Renting gives potential home buyers plenty of time to save money, resolve credit problems and improve credit scores, as well as to consider the type and location you want in a home span>

While the overwhelming majority of Americans (91%) want to own at least one house in their lifetimes, 88% of renters are concerned about buying one.

Many of these concerns are valid.

Renters are most concerned about the cost of homebuying. According to the National Association of Realtors, the median price of single-family homes in the U.S. increased 5.3% between 2016 and 2017. According to NAR, prices increased more than 10% in 19 out of 177 metros, while prices dropped in 15 metros. Seven of the 15 metro areas with a decline in home prices saw a decrease of less than 1%.

The down payment is a large part of the cost associated with homebuying. NerdWallet users agree with the 2017 NerdWallet Down payment Reality Report that 44% of Americans think you should have a downpayment of 20% or more. NerdWallet’s mortgage calculator was used by over 400,000 consumers in 2017. They then went on to the application site of a mortgage lender and averaged 20% down payments. Unsurprisingly, the estimated purchase price and downpayment percentage rose with higher FICO scores.

Takeaway for home buyers: A larger down payment can help you avoid borrowing as much or paying private mortgage insurance. This will result in lower monthly payments. In today’s market, 20% down is not required. You can get a loan with as little as 3% down. Be aware of your options. Saving up for a large down payment is a good idea, but loans that allow you put down less could help you become a homeowner sooner.

Tenants don’t need to worry about maintaining a home, but homeowners do have to pay for it. 58% of current renters are aware of this fact. The amount of maintenance required to maintain a home will depend on many factors, including the location and age of the home. Homeowners can expect routine maintenance to equal 1%-2% of their home’s annual value. This is roughly $2,500 to $5,000 for a home with a median price of $254,000.

38% of renters who are concerned about homebuying have concerns about getting a mortgage. The most recent data available under the Home Mortgage Disclosure Act shows that there were almost 600,000 mortgage rejections in 2016. In 2016, the most common reason for loan denials was credit history, which was also top-ranked in 2015.

Takeaway for home buyers: If you are concerned about your ability to qualify for a mortgage, there are steps that you can take to improve your credit and reduce your debt-to income ratio. These are two major reasons why mortgages are denied. These goals can take many years to reach, so it is best to get started as soon as you have your down payment funds.

28% of renters who are worried about homebuying have concerns about the process of applying for a mortgage. This is understandable considering the effort and time involved. NerdWallet 2017 report found that 42% of homeowners deemed the process of buying a home stressful. Home buyers now have many options for how to apply and navigate the mortgage process. Some lenders offer online applications and can even retrieve asset information through Rocket Mortgage. However, there are still some issues that buyers may encounter during the application process. These problems can be so severe that they need to file formal complaints.

NerdWallet’s analysis of data from Consumer Financial Protection Bureau shows that there were 3,338 complaints about the 2017 mortgage application and underwriting process. While most complaints about mortgage lenders fall under the category of loan servicing, payment modification, and collection, thousands of them are directly related to getting a Mortgage.

The CFPB declined speculation as to why total complaints dropped by 26% between 2016 and 2017.

75 percent of Americans (or three-quarters) say that buying a house is a top priority. This includes 82% of millennials. The youngest generation is more likely to prioritize homebuying than any other generation (75% of Generation X, 69% of the baby boomers), and they also aspire for a larger number of homes.

To see why Americans choose to buy a house, click here

The number one reason Americans choose to buy a home is because they think it’s a good investment. 64% of those who do so cite this as their main reason. Recent buyers also cited investment value as the number one reason they bought homes in the last five years (40%), and prospective buyers are keen to buy within the next five (44 %).).

52 percent of Americans (52%) agree with the statement, “I would prefer to have a home that appreciates (increases in value) than have more money for retirement savings.” This is compared with 51% for Generation X and 49% for baby boomers. Millennials are also more likely than Generation X (42%), or baby boomers (20 span>) to want to rent out their home (59%)

Every homeowner wants to sell their house one day for more than they paid for it. Manni points out that homeowners have a variety of options to increase their home’s value. But before you begin putting extra income into your house, make sure that you are also contributing to retirement. Also make sure your emergency fund has at most a three-month reserve span>

The following table shows that individuals with higher household incomes are less likely to consider real estate an investment choice.

Click here to view sentiments by generation about home buying as an investment.

METHODOLOGY

Harris Poll conducted the 2018 Home Buyer Report survey online in the United States from December 7-11, 2017. It was done among 2,165 U.S. adult 18-and-olders. The online survey does not use a probability sample, so it is impossible to estimate the theoretical sampling error.

Maitri Jani, (email protected) for additional data and complete survey methodology.

NerdWallet describes generations as: Millennials (age 18-34); Generation X (age 35-54); and baby boomers (age 55+).

The percentages in “Mortgage Denials by Reason 2015-2016” represent the number of mortgage denials for owner-occupied homes reported under the Home Mortgage Disclosure Act. Each reason is stated. Source: Consumer Financial Protection Bureau.

The National Association of Realtors has released the 3Q17 median home price ($254,000).

CFPB Mortgage Complaint Data as of January 17, 2018. The agency has changed the categories of mortgage complaints from 2016 to 2017. Those included in the application and credit approval process numbers above include the “application, originator, mortgage broker” and “credit decision/underwriting” categories in 2016 and the “application, originator, mortgage broker,” “applying for a mortgage,” “applying for a mortgage or refinancing an existing mortgage,” and “credit decision/underwriting” categories in 2017.