Fear and finance in real estate

What's keeping fence-sitters on the fence?

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Dec. 16, 2011

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What's keeping fence-sitters on the fence?

Tara-Nicholle Nelson
Inman News™

Homes are cheaper than ever (OK, cheaper than they've been since 2003, to be precise), and rates are lower than ever, yet sales activity is relatively low and stagnant.

A study published this week by Yahoo! Real Estate took a deep dive inside the minds of renters and owners to get to the bottom of this puzzling truth. Fifty-nine percent of the renters surveyed said they would prefer to own their homes.

So, what on earth is stopping them? The answers were loud and clear: fear and finance, and in these renters' minds the twain definitely do meet.

At least one-quarter of the renters and owners in the market identified one or more of the following as their primary fears about buying a home:

  • worry about mortgage payments rising (25 percent);
  • concern that their credit is not good enough (25 percent); and
  • the fear that property taxes will rise (28 percent).

A full 30 percent of the owners and renters who self-identified as interested in buying a home expressed concerns that they might not be able to scrape up enough cash for a down payment.

And the No. 1 concern was arguably the one that is the most contradicted by the facts of the current market climate: 36 percent of buyers were fearful about the cost of owning a home.

Source: Yahoo! Real Estate Home Horizons 2012 survey -- based on responses 415 buyers/renters in the market to purchase a home.

Among the nearly one-third of survey respondents who were renters, top reasons for renting included:

  • don't have money for a down payment (53 percent);
  • insufficient capital/income (51 percent);
  • insufficient credit/won't qualify for a loan (38 percent); and
  • don't want long-term debt (25 percent). 

Source: Yahoo! Real Estate Home Horizons 2012 survey -- based on responses 496 renters

The paradox is inescapable -- prices and rates are at bargain-basement lows, and renters and prospective buyers are fearful that homeownership just costs too much.

At first glance, fear seems like one of those nebulous concepts not worth even trying to explore in the context of the hard numbers and market dynamics of real estate economics, but economists have long known otherwise.

In fact, I conceive of homebuyer fear as holding down one end of the consumer confidence continuum, a measurement of consumer mindsets that has long been unanimously understood to exert a powerful influence on the hard numbers that drive market recovery, health and stability.

Against that backdrop, the power of studies like this one becomes much more clear. Identifying what buyers' fears are, specifically, empowers agents and sellers to address them in the way they market and describe their listings.

Beyond how it helps individual players in the market, it also holds the potential to course-correct public policy when it comes to buyer education, mortgage lending guidelines and buyer assistance programs.

(The latter assumes that we as a nation do actually see smart homeownership as a valuable social norm worthy of furthering -- an admittedly debatable assumption these days.)

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