Reasons why people do not buy homes
Mortgages, Conventional Loans, FHA Loans, PMI, Real Estate
Poor credit history/score
Credit history could be fixed quickly if other requirements (like two years of employment) are in place.
Instability on the market
Nobody knows what will happen. Clearly, the current situation is not the same as in the crisis of 2008 (or 2000). But a year or two ago, the market was really great, and some people still refused to enter the home market.
Loss of mobility
Owning a home is an obligation that limits lifestyle and mobility. It is harder to change jobs, move to another place, travel/enjoy life. 🙁
But, when we talk about young couples or families who already agreed to limit their mobility (by getting married), this becomes a weak argument against buying a home.
High student loan debt
Graduated students may have high student loans, which take a long time to return. As a result, people are getting married much later than before, and they want to start focusing on building their carrier as soon as possible. So for the high loan debt could be the reason to postpone creating families and home purchasing.
High requirements for a downpayment
The downpayment (in the percentage of the home price) almost always was in the range of 3-20%.
While typical downpayment is about 20%, conventional and FHA loans may require as little as 3% and 3.5% downpayment, respectively.
PMI (the private mortgage insurance)
Note that purchasing PMI is required for a conventional loan with a downpayment lower than 20% and for an FHA loan. PMI could be removed from a conventional loan when the home equity exceeds 20%. Removing PMI from an FHA loan is impossible, but an FHA loan could be refinanced to a conventional one.
Affordability of home purchasing
When people say that downpayment is too high, they probably mean they cannot afford the purchase because of high prices. Some people cannot buy a home, regardless of how low the downpayment is. Lower downpayment means higher monthly payments, no free lunch.
Note that low downpayment may result in a high loan amount, high loan interest, high closing cost, and added on top of this: PMI.
Home prices skyrocket, unreasonable?
The home prices are high due to the low Fed rate environment we have been living in for the last several decades. The Government intentionally reduced the Fed rates, interest rates (ARM, 30-years fixed-rate), leading to the inflation of assets.
Simply telling, the Government created extra liquidity in the market, which pushed the prices of the assets (stocks, real estate) up.
Institutional and big investors are the winners of such situations. Anybody who was able to start investing in stocks or real estate also could benefit from this. But most people who were “late” to “catch this train”, and their income has not been increased proportionally to assets price growth.
Excellent short article: First Time Home Buying in the 1950s, 1960s, 1970s