Down Payments Still Hinder Home Buyers

IRVINE, CA—Affording the down payment on a home is still a major hurdle for first-time home buyers, although personal savings have been inching up since 2008, RealtyTrac's VP Daren Blomquist tells GlobeSt.com. Given the firm's recent report about many couples having to choose between a wedding and a down payment, we spoke exclusively with Blomquist about the role of down payments in home buyers' decisions and how likely it will be that Millennials will return to home buying at some point in the future.

GlobeSt.com: How much of a role is the cost of a down payment affecting first-time home buyers' purchase of a home?

Blomquist: It is still a major hurdle, although there are encouraging signs with the average personal savings rate edging up to consistently around 5% since the end of 2008 after hitting an all-time low in July 2005 (since the Fed began tracking in January 1959). The average savings rate over the past seven years is 5.7%, which is still well below the historical average of 8.4%, but that higher savings rate should eventually pay off in terms of giving potential first-time home buyers enough savings for a down payment. The big question is whether homeownership is appealing enough that they will want to spend that savings on a down payment or something else like a wedding.

GlobeSt.com: Which is more of a concern for the residential market when it comes to first-time home buyers: the down payment or the mortgage?

Blomquist: At this point, I think it's neither. Our affordability analysis indicates mortgage payments are affordable in most areas, and the plethora of low-down-payment programs available should make that less of an issue (especially considering sometimes the security deposit on a rental will add up to close to a down payment amount). It's about being burdened with hundreds of thousands of dollars in debt with the possibility you might get stuck with that debt if house prices drop again.

GlobeSt.com: If down payment were not an issue, do you believe that more Millennials would be buying homes now despite their attraction to the apartment lifestyle?

Blomquist: No, I don't think down payment is the primary issue at this point. It's about not trusting homeownership as a good decision. It will take time to renew Millennials' trust in homeownership.

GlobeSt.com: What else should our readers know about down payments' relationship to home buying now?

Blomquist: I think the point of this analysis is that down payments in most areas are not insurmountable, especially when you put them in context with the cost of a wedding. Buying a home over the long term should be a good investment, so it's worth considering using some savings for a down payment rather than blowing it all on a wedding. Or, if you're a parent paying for the wedding, maybe consider using some of that to help your child buy a house and having a more moderately priced wedding.