Young renters would prefer to own a home

May 22nd, 2014

Many young consumers are renting so they can become financially prepared to own a home.

A recent study by Fannie Mae found that young renters still prefer to own a home rather than rent.

Although millennials have been faced with many unique challenges during the housing recovery, owning a property affords young renters the lifestyle and financial benefits they want. Via telephone interviews of 1,000 respondents conducted by Penn Schoen Berland, Fannie Mae asked two groups – young renters and young owners – whether renting or owning makes more sense during the third quarter of 2013. Among the former, 59 percent said owning makes more sense because it provides more control over where they live and a sense of security and privacy. This share is down from 62 percent the year prior. Eighty-six percent of the young owners surveyed said the same, an increase from 83 percent the previous year.

In addition to having more faith in owning a home, young owners were more optimistic about getting a mortgage. Only 35 percent of these homeowners said that it would be very or somewhat difficult to get a home loan in the fourth quarter of 2013, down from 38 percent the previous quarter. Conversely, 73 percent of young renters said the same, a decline from 74 percent quarter to quarter. These renters are specifically concerned about down payment and credit requirements. Furthermore, rising student debt and concurrently declining income and asset levels are seen as obstacles.

Young renters still looking forward to homeownership
Despite the apparent pessimism among this group, many want to purchase a property in the future. For the current survey, 26 percent said they are renting so that they can become financially prepared to own a home down the road. Additionally, about 50 percent of this group said they plan to purchase a home the next time they move.

Fannie Mae suggested that those seeking to transition to homeownership should increase their knowledge of the homebuying process as well as the mortgage options available. The government-sponsored enterprise gave several tips for young renters who want to increase their understanding and buy a home:

  • Creating a budget is essential for determining what price is affordable for their finances.
  • Future buyers should determine a down payment goal and begin saving far in advance of their planned home purchase.
  • They need to be aware of mortgage qualification criteria.
  • Making the final decision of whether to own or rent depends on those financial considerations as well as which option fits their lifestyle.