Thrifty Thinking: Home Ownership

Experian is out with new data on home buying. The new national survey reveals homes feel less affordable today than they did 10 years ago, and homebuyers are increasingly considering “opting out” of homeownership.

Among the findings:

• 27% are opting out of home ownership in the next 5-10 years

• 37% cite a reason as wanting more flexibility to relocate and 26% do not want to carry as much debt and don’t want the responsibility of maintaining a home

• 54% think houses today are less affordable than they were 10 years ago

• 43% say they were denied a home loan
• 67% of this group say they were denied a loan due to a poor or limited credit history

I had a chance to interview Sandra Bernardo, manager of consumer education at Experian, to learn more.

Why is flexibility more important to some families than home ownership?

The survey findings didn’t indicate why, but we can speculate that one reason may be to have job flexibility. With the housing market in many urban cities being so expensive, consumers may want the flexibility of seeking employment and setting up roots elsewhere where the cost of living is more affordable and they have a better chance of being able to purchase a home when they are ready. 

For example, in Southern California home prices have increased the last five years and experts say they  aren’t about to drop any time soon. Today a median-priced house cost about $2-300,000 more in L.A. and Orange Counties, than five years ago.

Also, 34% of survey respondents that are opting out of home buying are millennials (ages 18-34) and perhaps it has to do with that generation’s mindset; they tend to flock to bigger cities where the lifestyle is expensive and are delaying marriage and children which is a trigger for settling down with a home. According to data from the Census Bureau, more than 80% of 25 to 34-year olds live at home with parents or other relatives and only 55% live with a spouse or partner, compared to 80% in 1967.

Some people choose not to buy a home because of the debt load or difficulty getting a loan. How could these barriers be minimized?

Consumers must make managing their budget and debt a priority. To minimize debt, create a monthly budget and stick to it. Make sure to spend only what you can afford and pay off your credit card bills in full each statement. This will help put you in a good position for a home loan. Additionally, it’s important to check your credit score and credit report frequently; your score is one of the most important factors in a lending decision. Consumers can check their FICO® Score (which is used in most lending decisions) for free at freecreditscore.com and get their Experian credit report.  To manage your credit score, take into account the following:

• That you are current on all of your accounts such as credit cards and that your credit utilization is not too high. 
• While income is not part of your credit report, many lenders may ask for income information so check your debt-to-income ratio. 
• It’s helpful to have a diverse mix of accounts such as an auto loan, credit cards, etc., to show that you can manage a variety of credit obligations.

If there are inaccuracies in the credit report, contact the credit bureaus to dispute the information and get it corrected. This process can be conducted online on the credit bureaus’ websites. 

How can people find an affordable home in today's market?

What is affordable to a consumer depends on their individual situation and what they deem affordable. However, to put themselves in the best position once they find their dream home is to make sure they have a good credit score and that their credit report is accurate. A good credit score is key to earning the best interest rate, which can save a consumer thousands of dollars in the long run. Before house hunting, they should create a spreadsheet with the down payment, additional purchasing costs and ongoing expenses a home requires so they know what they are getting into and can afford.  For information on managing credit and finances, consumers can go to www.experian.com/education.

Homebuying Survey 

Audience: Purchased within the past year or plan to purchase in the next year

Sample Size: 500

Timing: Fielded June 21-27, 2017

Homes feel less affordable today than they did 10 years ago, and even homebuyers are increasingly considering “opting out” of homeownership.

• 27% are opting out of home ownership in the next 5-10 years 
• 34% are ages 18-34
• By region: 
• 32% West 
• 26% Northeast 
• By income:
• 29% of consumers with 100K+ income, an increase of 16% from 2016
• 37% cite a reason as wanting more flexibility to relocate and 26% do not want to carry as much debt and don’t want the responsibility of maintaining a home
• 36% do not agree that there are enough houses on the market to choose from
• 54% think houses today are less affordable than they were 10 years ago

“With the cost of homes today and low inventory in many areas, it’s no surprise that many consumers either prefer to rent a home or resign themselves to renting because it’s the only option,” said Sandra Bernardo, manager of consumer education at Experian. “This has been the trend for several years since the housing bust. We’ll see if developers and communities address this issue in the future to build more starter homes to fit buyers’ pocketbooks.”

It’s a struggle for many to finance a home.

• 56% are unhappy with their experience purchasing a home (future buyers).
• 30% say there is more paperwork compared to the last time they purchased a home (recent buyers). 
• 43% say they were denied a home loan 
• 67% of this group say they were denied a loan due to a poor or limited credit history

“There’s no question that buying a home is a daunting endeavor, said Sandra Bernardo, manager of consumer education at Experian. “If purchasing a home is your dream, start planning now.  Assess your financials so you know how much you need to save for the down payment and monthly expenses.  Make sure to understand the home loan process and check your credit score and credit report to know where you stand prior to applying so there are no surprises.  A good credit score is key to earning the best interest rate, which can save you thousands of dollars in the long run.”  

Homebuyers recognize the importance of credit and more are working to improve their credit.

• 56 percent overall say they are working to improve their credit to qualify for a better home loan rate
• 66% ages 18-34, up from 53% in 2016
• 61% ages 35-54, up from 45% in 2016
• 61% of males, an increase of 18% from 2016
• 54% have delayed purchasing a home to improve their credit to get a better interest rate
• 50% are ages 18-34

“One of the most important steps you can take when you are planning to purchase a home is to check your credit score and credit report,” said Sandra Bernardo, manager of consumer education at Experian.  “You should make sure you have a solid FICO® Score and that personal information on the report is accurate. Visit freecreditscore.com to obtain both (an Experian credit report only) for free. Your score can make the difference between getting approved for a loan and receiving the best interest rate or not securing your dream home.”