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Debt, bad credit keep renters from becoming homeowners, Fed survey shows

By Jeff Lazerson

4/26/18

What I think: A new survey by the Federal Reserve Bank of New York provides a glimpse into why renters are struggling and why others are able to buy a home.

Responses to the plethora of questions in the 2018 Survey of Consumer Expectations regarding Housing demonstrate that while many renters want to buy a home, they have lower incomes, less savings, lower credit scores and higher debt.

Here are a few of the biggest buckets of interesting and contrasting answers offering a snapshot of why most renters are not becoming homeowners.

• Almost 31 percent of renters reported their credit scores are sub-620. Contrast that with almost 46 percent of homeowners who report their credit scores as over 760.
• Nearly 19 percent of renters earn $20k to $30k annually. Contrast that with the largest two cluster of homeowners (15.5 percent) reporting their incomes at $75k to $100k and $100k to $150k.
• Almost 52 percent of renters have less than $2,000 in liquid savings, which includes stocks and bonds but not retirement funds. Almost 24 percent of homeowners have between $50,000 and $250,000 in liquid savings.
• Almost 49 percent of renters cited the lack of savings or too much debt as reasons they would not buy if they were to move in the next three years. The second-biggest reason, at more than 47 percent, was their incomes are too low.
• Yet, more than 42 percent of renters strongly prefer owning if they had the financial resources.

Now, let’s remove renters from the equation and focus on what seems to be happy homeowners across America.

• More than 44 percent of homeowners expected to stay more than 10 years.
• Over 63 percent said they like their current home and there was no reason to move in the next three years.
• Almost 52 percent have refinanced their primary residence, a fourth in the last three to five years. More than 78 percent of respondents said they got a lower rate, and more than 31 percent said they changed servicer. Nearly 93 percent chose fixed rates over an adjustable-rate mortgage.
• A whopping 71.6 percent of homeowners who get cash from a refinanced mortgage will use some or all of the proceeds for home improvements. More than 58 percent spent some of their “cash-out” proceeds paying down credit cards, auto loans, student loans and medical bills.

If you have questions or comments, please contact Jeff Lazerson by clicking here. For more great insight make sure to check out Jeff Lazerson’s Mortgage Grader Radio Show on Sundays at 10 am on AM830 KLAA.