Market conditions are growing more challenging for renters who are trying to become first-time home buyers as down payment savings timelines expand.
Housing affordability fell below historical averages in half of the country in the second quarter, with the lower end of the market seeing the greatest extremes. Starter home prices are appreciating at nearly seven times the pace of renter income, according to Zillow.
This disparity in growth rates added a year to the amount of time a typical consumer would need to save for a 20% down payment compared to 2016. To keep stride with Zillow’s projected 14.9% increase in home prices for the next year, renters will need to reserve an additional $369 per month.
"Without the equity from a previous home sale, first-time home buyers face more challenges in coming up with a down payment," Nicole Bachaud, Zillow economic data analyst, said in the report. "As prices rise at a record pace, it may take even longer for today's renters to save up for tomorrow's homes.”
It now takes renters 6.4 years to save up for a 20% down payment on the median starter home in the U.S. However, that calculation assumes a monthly savings rate of 10% and the average renter household only saves 2.4% of their income.
Among the 50 largest housing markets, the top five longest timelines were in California. San Diego renters will need 17.9 years to accumulate a 20% down payment, narrowly edging out the 17.6 years in Los Angeles, 17.4 in San Francisco, 16.6 in San Jose and 14.2 in Sacramento. Conversely, it only takes 4.7 years in Birmingham, Ala., and Memphis, Tenn., and five years for Detroit.
While COVID-19’s “great reshuffling gives consumers work-from-home flexibilities and the potential to live in a different — and less expensive — city from their job, purchase sentiment is increasingly pessimistic.
A 34.2% share of renters have little-to-no confidence they will be able to buy a property compared to 25.6% prior to the pandemic, according to Rent.com. Nearly half blamed booming prices of the past year as their deterrent to homeownership. About a fifth cited changes to their employment status, 14% said an inability in saving for a down payment kept them from buying while 13% weren’t comfortable waiving appraisals or contingencies and preferred sitting out of any bidding wars.
