Bankrate survey: Nearly half of renters are afraid they can’t buy

owner and renterRents are steadily climbing; still, many Americans aren’t quite ready to buy a home.

Who owns and who rents?About one-quarter of respondents ages 18-29 own their homes, and the proportion of homeowners goes up with age. The “other arrangement” category includes people who live rent-free with parents, other family or friends.

More than a third of non-homeowning consumers say the main reason they don’t own is that they just don’t want to be homeowners yet. That’s according to a survey commissioned by

Nearly half of respondents say they’re not homeowners right now because they either can’t afford a down payment (29%) or they believe their credit isn’t good enough to qualify for a mortgage (16%).

“A lot of people make assumptions that they can’t afford to buy based on just some perceptions, and many have not taken the step to figure out how mortgage-ready they are,” says Marietta Rodriguez, vice president of national home ownership programs at NeighborWorks America in Washington, D.C.

Hispanics were the ethnic group most likely to report that their credit is holding them back from home ownership, while the most-cited reason among blacks and whites was they just don’t want to own a home yet. The findings also indicate that as respondents’ education level increases, they are less likely to report that the reason they don’t own is due to credit problems.

Recession pains linger

Among all ages, 35% of non-homeowners don’t want a house yet. That’s the reason given by 44% of millennials (ages 18-29), 28% of non-owners ages 30 to 49, 29% of those ages 50 to 64, and 30% of those 65 and older.

The share of non-homeowners who have counted themselves out of home ownership for the time being is somewhat expected, considering the lasting effects of the housing meltdown, says Pava Leyrer, chief operating officer for Northern Mortgage Services in Grandville, Michigan.

“A lot of people went through some deep pains in the past 10 years or less,” she says, citing foreclosures, job losses and bankruptcy filings. “All of those things are traumatic in your life.”

The down payment dilemma

The survey also asked non-homeowners what percentage of the total cost they would contribute as a down payment on a hypothetical home purchase. Nearly 2 in 10 said somewhere between 11% and 20% down, and another 17% of respondents would put down 6%-10%.

The most popular response, however, was “don’t know” — almost a quarter of non-owners report they don’t have a clue how much they would put down to buy a home.

Although it appears to be a substantial percentage of people, Rob Chrane, president and CEO at Atlanta-based Down Payment Resource, says it’s consistent with what his company has encountered.

Only 9% of non-homeowners said they would put down 1% to 5% of the purchase price as a down payment, which speaks to the overall dearth of knowledge about down payment requirements, Chrane says. It’s possible to get an FHA loan with just 3.5% down, or a conventional loan with 3% down.

Additionally, the survey underscores the fact that many aren’t aware that down payment assistance is available, which could be keeping them on the sidelines.

“The biggest single issue is that consumers just don’t know these programs even exist,” Chrane says. “If you don’t know of the possibility then you don’t know to ask people for help with it.”

Know where you stand financially

The solution to misinformation about the homebuying process is to reach out to a nonprofit housing counseling agency, Rodriguez says.

And, even if you’re not ready to buy, it helps to find out where you stand financially, advises Leyrer.

“As you plan your financial life moving forward in the future, you can plug that in and say, ‘I have a good idea of where I’m at (and) what I need to do,’” she says.

Bankrate’s February Money Pulse survey was conducted by Princeton Survey Research Associates International and included responses from a nationally representative sample of 2,002 adults living in the continental U.S. The margin of error is plus or minus 2.6 percentage points.


Why Real Estate Could Be a Better Investment Than Stocks

1By Aug. 20, 2015 | 9:45 a.m. EDT

Once you’re on track with your financial goals – such as retirement contributions or repaying student loan debt – you may find yourself exploring real estate investments in lieu of the stock market. Buying real estate as an investment can be lucrative, but it’s also cash-intensive and carries risks.

As you weigh your options, consider the following points in your analysis.

Risk versus expected returns. Whether putting cash into the market or purchasing real estate, you need to assess the risk versus the expected returns. Traditional equity investments are much easier to analyze in this way. You have historical data, and although past performance is not indicative of future results, you have a bit more control over how much risk you’re exposed to when deciding what amount to invest, the asset allocation and so on. Investing in single stocks versus an index fund is a calculated risk some are willing to take in search of higher expected returns.

The risks when buying real estate can be much harder to quantify. While there is data available, such as comparable home prices in the area and average rents, unpredictable changes in the market can be costly. When investing in the equity market, your risk of loss is limited to your initial investment. This isn’t the case with real estate – you could wind up owing the bank more than the value of your property if the market experiences a downturn, or even due to changes that negatively impact a neighborhood.

For landlords, vacancy and repairs can eat into profits. Once you calculate your expected mortgage, operating costs, taxes and maintenance, how much can you expect to earn in net rental income? The answer for every investor will be different, but for some, the anticipated return will not be worth the risk and effort involved in owning real estate.

Required capital. Virtually anyone can invest in traditional equity assets. Some shares can be very inexpensive and you can often determine the volume as well. The same cannot be said for real estate. To purchase a property, you need to either come up with a down payment yourself, or enlist partners to invest with you. Typically, you need to put down 20 percent for a traditional mortgage, and although various programs can help you to put down a smaller percentage, there are fewer options for investment properties.

The initial cash outlay is what deters many would-be real estate investors, as you could easily spend upwards of $100,000 on a down payment and initial repairs. Furthermore, real estate requires additional capital to maintain the property, often not at the owner’s behest. With stocks, you can make a one-time investment or purchase additional shares later, at your discretion.

Taxes. Another aspect to consider when deciding to invest in real estate or the stock market is taxes. If you own property, you will be required to pay property taxes every quarter, based on the assessed value as determined by the city or country. This is included in your mortgage payment. Whether you want to flip the property or hold onto it as a landlord, you will also have to pay tax on the sale or rental proceeds.

There are certain tax benefits unique to owning real estate as a landlord, however. The interest expense on your mortgage is tax deductible, along with operating expenses, property taxes, insurance and depreciation. Exactly how much you can deduct will likely depend on the rental income. In most situations, under the passive activity loss rules, you cannot write off deductions that are more than the rental income, which would generate a loss. Working with a CPA can be very helpful, particularly when investment properties or multiple residences are involved.

Stocks have tax consequences as well; first, you are required to pay a capital gains tax on any profits you made from selling stock. Furthermore, even without a sale, you are also required to pay a tax on any dividends you receive.

Inflation. Real estate can be a potential hedge against inflation as historically, rental rates and home prices rise with inflation. This provides a potential inflation hedge for both your rental income and sale of the property. Since your mortgage payments will not increase with inflation, it offers a benefit over time.

Traditional equity investments are not as directly linked to inflationary measures. Although prices do tend to rise over time, the market cannot offer the same potential inflation protection as real estate.

Time. Another factor to consider when choosing to invest in real estate or the stock market is to factor in your time as a cost during the analysis. While you do need to do some research when deciding which funds to buy, you can purchase traditional equity investments in a matter of moments. There is a lot more time required in buying and maintaining a property, as well as managing any improvements.As a landlord, you will be on call for the tenants as problems arise. Hiring a property manager is an option, but depending on the size of your property, could eliminate your profit margin.

With the right property, neighborhood location and cash reserves, investing in real estate can be a great option. Many investors are drawn to the ongoing “coupon” payment of rental income, and as a long-term strategy, the ultimate sale of the property can fund a large portion of their retirement. If you’re considering whether you should invest in the equity market or buy an investment property, carefully weigh these factors and determine whether your expected income is worth the risk it carries, especially in light of other investment options.

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Buy it or rent it, shelter is getting more expensive

One consequence of the housing crash has been the spectacular rise in residential rent. With fewer people able or willing to buy a home, demand for rental property surged.

for-sale-for-rentEven with investors buying up distressed homes and converting them to rentals the supply still couldn’t quite keep up with the demand. According to real estate website Zillow, that trend isn’t likely to change anytime soon.

In its latest Home Price Expectations Survey 52% of the industry analysts with an opinion said the rental market will eventually correct, but that won’t happen for a while. Zillow Chief Economist Dr. Stan Humphries says, when it does happen, it will happen naturally.

“Solving the rental affordability crisis in this country will require a lot of innovative thinking and hard work, and that has to start at the local level, not the federal level,” he said. “Housing markets in general and rental dynamics in particular are uniquely local and demand local, market-driven policies.”

Home prices rise

While rents continue to rise, so do home sale prices. The National Association of Realtors (NAR) reports most U.S. metro areas saw slightly stronger growth in home prices during the fourth quarter of last year. NAR says prices were boosted by fewer homes for sale, a slight increase in demand and a stronger job market.

Lawrence Yun, NAR chief economist, says the long housing recovery is showing legs.

“Home prices in metro areas throughout the country continue to show solid price growth, up 25 percent over the past three years on average,” he said. “This is good news for current homeowners but remains a challenge for buyers who are seeing home prices continue to out-pace their wages. Low interest rates helped preserve affordability last quarter, but it’ll take stronger income gains and more housing supply to help meet the pent-up demand for buying.”

The national median existing single-family home price in the fourth quarter was $208,700. That’s up 6.0% from the fourth quarter of 2013.

For all of 2014, the median price increased 4.8% in the third quarter from a year earlier; 4.2% in the second quarter from a year earlier; and 8.3% in the first quarter from a year earlier.

International buyers remain active

Rising prices and a strong dollar are doing nothing to discourage foreign investors from buying U.S. homes, particularly homes in California. The California Association of Realtors (CAR) ssays that 14% of its members closed a 2014 transaction with a buyer from another country.

More than a third of foreign buyers were from China and two thirds of all foreign buyers came to closing with all cash.

Foreclosures, which triggered the housing crash, haven’t completely disappeared as a factor in the housing market. In its most recent report on foreclosures, RealtyTrac found foreclosure filings rose in January from December, including a 55% jump in bank repossessions.

Still, the 58,000 foreclosure filings were down considerably from the peak of the crisis, when there were 158,000 foreclosure filings in March 2010.

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