A report from Realtor.com, the National Association of Realtors listing site, says renters who had to dip into their savings to cover their everyday expenses during the scourge are highly likely to delay purchasing a house.
The report doesn’t say how long they might have to wait to move up to home ownership. But it does say that on average, it will take nine months to recoup a single month’s expenses.
“If Millennial renters are forced to dip into their down payment savings for several months,” Realtor.com Chief Economist Danielle Hale says, “their transition to home ownership could be delayed by years.”
But just because they can’t buy doesn’t necessarily mean they’ll stay on in the apartment they now occupy.
Another study, the COVID-19 National Renters Study from SatisFacts, found that of the 56.2 percent of the renters that are on leases that expire in the next six months, more than a third—35.9 percent—are not likely to re-up. Of the rest, 38 percent were iffy on the question. Only 26.1 percent said they were very likely to renew.
SatisFacts, a researcher in the multifamily space, polled some 100,000 renters for its study. And surprisingly, affordability was a “non-factor” for the group not likely to renew. Of the 19 reasons pollsters presented to respondents for their decision, “can’t afford” ranked 18th.
At the same time, eight of the 10 most frequent reasons cited for not likely to sign a new lease are what the survey called “controllable issues.”
“When residents cite topics such as neighbors, apartment appearance and condition, and office staff, they are clearly indicating a lack of connection,” according to the survey. “Those who do not feel emotionally attached to where they live will be motivated to look elsewhere in hopes of finding such a connection.”
In yet a third study, not quite half of renter respondents said they were “more inclined” to buy now rather wait. This study is a nationally representative survey of 3,001 US adults between the ages of 25 to 74 with an annual household income of $50,000 or more. Conducted online from April 23–30 and analyzed in early May, it looked at how people view their living arrangements after being quarantined while working, schooling their children and trying to find a new normal.
Analyzing Down Payments for Houses
According Hale, if the typical Millennial household had to use the money he or she was saving for a down payment to pay living expenses, it would take nine months to recoup the cost of just one month’s worth of expenses. But that’s with an aggressive savings rate of putting away 10 percent of their take home pay. The 20-year national savings rate is an average of 6 percent.
If pandemic conditions continue for six months, then it would take the typical Millennial 53 months—more than four years—to recoup what he had already saved for a down payment. But that’s only if the household income returns to pre-COVID levels. Moreover, it does not count the time it takes to ramp back up to full employment, which could delay household recovery even further.
Hale says the renter-to-buyer pipeline is leaking already. The median Millennial down payment is 8 percent of the purchase price. To buy a house costing $320,000, the national median listing price in April, they typical down payment would be $25,600.
But nowadays, banks have tightened their down payment requirements, with some now demanding as much as 20 percent upfront. And Hale’s analysis shows that adding even 10 percent to a buyer’s down payment would require an additional 6.5 years of savings, on average.
Of course, the Realtor.com analysis varies by region. All 593 counties studied need between eight and 10 months’ savings to recoup just one month’s household expenses. If renters in the markets needing 10 months of savings—San Francisco and Nashville—dipped into the purchase money, it would take five years to get back to even.
“But we’re finding that even in markets where buying is the more affordable option,” Hale reporte. “Millennial home buyers are faced with similar challenges when it comes to saving money back up after siphoning from their savings.”
For example, even in the 10 counties where it takes the shortest amount of time—Sangamon, Ill., and Pinal, Ariz.—it still would take anywhere from 3.5 months to 6.2 months for would-be buyers to return to where they started from.