Mortgage Issues, Down Payment Woes Still Weigh on Housing Market

Mortgage Issues, Down Payment Woes Still Weigh on Housing Market
Mortgage Issues, Down Payment Woes Still Weigh on Housing Market

It's no secret that now seems like a good time to buy a home: Affordability is high, interest rates are low and inventory is plentiful. More than 70% of homeowners and 59% of renters agree that the market is tempting. But those positive signals aren't translating into sales. The latest Hanley Wood Housing 360 Survey shows mortgage issues and down payments remain choke points for new buyers to enter the housing market, even as attitudes about home ownership remain strongly positive.

"The overcorrection in the mortgage market is a drag on the process," Kent Colton, senior fellow at the the Harvard University Joint Center for Housing Studies, said in a statement. " We've gone from one extreme to the other and it's stalling the housing market and therefore the economy." He presented the survey findings in a phone conference with reporters on Tuesday. The survey respondents included more than 3,000 homeowners and renters across the United States.

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One in five U.S. homeowners remain underwater on their mortgages, the survey showed. That statistic underscores the prevailing feeling among 67% of homeowners that their current home is fine, and 40% of homeowners expressed no urgency to make a move within the housing market at this time. A quarter of existing home owners also said they needed a better paying job in order to consider buying a new home, the survey showed.

More than 50% of the renters polled said they simply cannot afford a down payment. Just behind down payment concerns on the list were a lack of motivation and a lack of confidence: 45% of renters said they did not feel any urgency to enter to market and 38% expressed concern that they may not qualify for a mortgage. More than half of renters said their job income needed to improve in order to enter the market, followed by lower down payment requirements and an improved credit score.

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The mortgage industry's tighter requirements for down payments may be in conflict with what people can afford: 65% of renters said that a 5% down payment or less was affordable, while that number was 36% for home owners.

In short term, the picture for the housing market remains "uncertain" through end of next year, said Colton, with little urgency from buyers and renters to make a move. He added that policy changes in the mortgage market could help motivate more buyers to enter the market. Over the longer term, Colton expressed optimism that the housing market would return to a sustainable equilibrium.

"We will continue to bounce on bottom, and at some point, people will realize it is a good time to buy and act on that, and we will see a bump up on sales," he said.