A survey of young adults found misconceptions: 2 out of 3, for example, are waiting for interest rates to go down – and 90% aren’t sure what a fixed-rate mortgage is.
NEW YORK – Many young adults may be missing key information they need to move forward in the housing market. For example, two out of three young adults recently surveyed say they’re waiting for lower mortgage rates to start the homebuying process, according to a survey of 1,000 non-owner millennials (between the ages of 25 to 40) conducted by Lombardo Homes. However, economists largely predict that mortgage rates will soon start to edge upwards, moving higher than their current lows that are hovering around 3%.
With mortgage rates already near historic lows, this “may speak to a lack of education and awareness among this cohort of homebuyers,” the survey notes.
Also, many young adults are underestimate how much money they need for homeownership. Millennials underestimated how much home they can afford right now, how much interest they would pay over a 30-year mortgage, and how much home values appreciate, on average, over 10 years:
- 1 in 4 underestimated their buying potential by $150,000 or more
- 1 in 3 underestimated – by 93% to 100% – the amount of interest they’d pay over 30 years on a $300,000 loan
- 1 in 4 underestimated how much a home historically increases in value over 10 years by $100,000 or more
Consumers in the survey also lacked knowledge about average home prices and property taxes in their local area, 59% did not know that the seller tends to pay all the real estate agent fees, and most did not understand many real estate terms that industry insiders take for granted. When asked if they could “confidently define this term,” the number who said “no” was:
- Appraisal – 48%
- Deed – 58%
- Assessment – 62%
- Principal – 64%
- Escrow – 68%
- HOA – 68%
- Earnest money – 72%
- Amortization – 74%
- ARM – 77%
- PMI – 86%
- FRM – 90%
- PITI – 94%
Regardless of the confusion, though, 83% of respondents are actively saving for a home right now, though rising rents may stand in their way: 71% said rent is so high it’s hard to accumulate savings for buying a home.
Other top reasons millennials say they haven’t bought a home yet are:
- “Can’t afford a down payment” – 85%
- “Can’t afford something nice enough to compel me to buy” – 67%
- “Want to be flexible, not tied to one area” – 63%
- “Not ready for the commitment” – 62%
Source: “Renting vs. Buying 101,” Lombardo Homes (May 13, 2021)
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