Young Renters Aspire To Buy Homes, But Can They?

Most younger renters think owning is a more sensible housing choice for financial reasons, according to Fannie Mae’s new National Housing Survey. Seventy-six percent of young renters, defined in this study as between 18 and 39, think owning makes more sense because they’re protected against rent increases, and owning can be a good investment over the long-term.

“However, a large majority of young renters have remained pessimistic over the last few years about their ability to get a mortgage; in contrast, younger owners have grown more optimistic,” says Sarah Shahdad, strategic planning analyst at Fannie Mae.

“Demographic differences between younger renters and younger owners may explain part of the gap in attitudes.”

Younger owners are more likely to fall in the higher end of the age range, earn more, and be employed full-time compared with younger renters, Shahdad notes. “The widening of that same gap during the last few years suggests that confidence in one’s ability to get a mortgage is growing primarily among those who have already met financial requirements,” she notes.

“Our results suggest that many young renters may continue to rent longer due to insufficient financial capability and/or preparation, despite the majority’s preference for owning.”

Young renters consider down payments and credit scores to be the top obstacles of getting a mortgage. Also, the presence of student loans heightens the difficulty, they feel. The majority of younger renters are reported to have insufficient assets to cover a 5 percent down payment plus closing costs on a typical starter home, Shahdad notes.

But, young renters say, one day, they still plan to buy. Enhanced housing education and alternative approaches to housing and savings may help renters fulfill their housing aspirations in a financially sustainable way,notes Shahdad.

“Educational resources and tools may help renters make more informed decisions about their housing choices and begin managing their finances early and efficiently in order to fulfill their goals.”

Also, promoting alternative paths to home ownership may help. Shahdad notes that about three-quarters of younger renters and owners said a lease-to-own arrangement would make renting more desirable to them since it would lead to home ownership.