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Tags: home | buyers | debt | stress

Home Buyers Experience Higher Levels of Debt, Stress

Home Buyers Experience Higher Levels of Debt, Stress

By Thursday, 25 June 2020 06:53 PM Current | Bio | Archive

A recent survey shows a change of attitude when it comes to owning a home. Clever Real Estate surveyed 1,000 homeowners (May 31 through June 2, 2020) who purchased their home between January and May of 2020.

Recent Buyers Show More Negative Feelings Toward Ownership

Clever found that home buyers who purchased a home in 2020 were more than twice as likely to experience more negative feelings toward homeownership — like stress and anxiety — than those in the four years prior. 2020 home buyers are 28% more likely to report having feelings of buyer's remorse than those who purchased their homes between 2015 and 2019 — with more than a third worried the pandemic might affect their home value.

Unlike in 2020, more than half of those who purchased a home between 2015 and 2019 associated homeownership with pride, comfort, happiness, and security.

Recent Buyers Have Lost Jobs, Are Struggling Financially

When buying a home, there are many additional expenses beyond simply a down payment. Moving costs, closing costs, furnishing the home, and repairs can drain bank accounts.

More than 50% of recent buyers used their savings account as a down payment — and 20% used COVID-19 stimulus money.

For many new buyers, this means a smaller emergency fund for the unanticipated negative effects of the COVID-19 pandemic. According to the survey, nearly one-quarter of recent buyers have less than $1,000 in emergency savings.

Recent Buyers Are Taking on More Debt

Many home buyers who purchased a home in early 2020 — pre-pandemic — have since experienced loss of income and financial hardship. 55% of 2020 home buyers reported that at least one person who typically contributes financially to housing costs has lost their job since purchasing their home.

Increased expenses from the purchase of a new home, new debt as a result of that homeownership, and the financial struggles related to the coronavirus have left many recent buyers in a tough spot with no savings to fall back on. 37% of recent homeowners have already taken out more than $2,000 in non-mortgage debt since purchasing their home.

And while Americans were prioritizing paying off debt pre-pandemic, experts are suggesting to put that plan on pause until we see more stability in jobs and the economy.

Recent Buyers Are Getting Behind on Mortgage Payments

Due to many of the factors mentioned above, it’s no surprise that recent buyers have already gotten behind on their mortgage payments. According to the survey, recent buyers were 1.7x more likely than the average homeowners surveyed in April to be late on their payments without having an agreement in place with their lender.

Lenders Have Tightened Qualifications

Record low interest mortgages may draw in more home buyers, but many will be unable to qualify as banks begin to tighten restrictions to minimize risk.

For example, JPMorgan Chase raised their minimum credit score to 700 on all new mortgage loans, and borrowers need to put at least 20% down. Two major banks have even suspended new home equity lines of credit.

Despite Lockdowns, It’s Still a Seller’s Market

While it may sound grim to be a seller right now, surprisingly, we are still in a seller’s market, as home prices have yet to dip down past last year's prices, according to Zillow. If home values do dip and prices of home sales drop as a result, it will likely be short-lived. Many experts predict a “checkmark” shaped impact, with values increasing quickly after a minor low spot.

While qualifications have tightened for home buyers, it tends to mainly affect just the highest-risk buyers in terms of lending. Markets are showing that the average home buyer with decent credit and income is still shopping and sellers are still seeing bidding wars.

Millennials — especially younger Millennials working in the service industry — have had their savings eaten up by the pandemic. Not to mention that renters tend to be harder hit by COVID-19 effects, and many millennials are still renting, especially in urban areas.

How to Weather the Storm as a Recent Home Buyer

If you’re a recent home buyer, relax. We haven’t seen any evidence that there is a need to panic about homes going underwater. However, there are some things you can do to ensure your financial stability comes through the pandemic unscathed.

Cut back on expenses

Just because you buy a new home doesn’t mean you need to buy all new furniture. Spend only what you need to — this may include things like moving costs and setting up new insurance. But, you can save on expenses by holding off on larger purchases or luxuries like cable or a lawn service. The pandemic won’t last forever and you can easily add in these expenses once you’re a bit more stable.

Save an emergency fund of at least 3 - 6 months of your monthly expenses

Put any extra cash — including any tax refund or stimulus money — toward an emergency fund. Experts suggest having at least three to six months of monthly expenses in an emergency fund in case of job loss or unexpected repairs on your home. By having this savings, you’ll avoid having to apply for costly loans to foot the bills in a pinch — or even worse, having to put it on a credit card.

Make sure any renovations are smart and provide high ROI

If you do have the money for renovations on your new home, carefully consider what you do first. Prioritize those that provide a high return-on-investment (ROI) when you resell.

This way, if worse comes to worse and you have to sell your new home in a pinch, your home will have increased in value and you can get that money back out of it. Just remember, even if you find a company with the lowest real estate commission, you’ll still pay a lot of money at closing when you sell – close to 10% of your home’s value.

Bottom line: There’s no need to stress if you’re a new home buyer. Try to keep up with mortgage payments, or come up with a payment plan, and hold off on any expensive renovations for the time being.

Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.

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A recent survey shows a change of attitude when it comes to owning a home. Clever Real Estate surveyed 1,000 homeowners (May 31 through June 2, 2020) who purchased their home between January and May of 2020.
home, buyers, debt, stress
Thursday, 25 June 2020 06:53 PM
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