BofA Report: 70% of Prospective Homebuyers Feel Renting Could be Detrimental to their Financial Future

Rhea-AI Summary

A new Bank of America Homebuyer Insights Report (HBIR) reveals that 70% of prospective homebuyers fear the financial repercussions of renting long-term, and 72% are concerned about rent increases impacting their finances. High interest rates and home prices have led to 57% of respondents being unsure about purchasing a home, up from 48% last year. Among first-time homebuyers, this uncertainty rises to 62%.

While 37% of respondents believe renting is currently the better option, 76% plan to buy a home within five years. The report highlights a generational divide, with 80% of baby boomer renters favoring renting over buying due to the freedom and reduced responsibilities it offers. Additionally, prospective buyers lack confidence in understanding mortgages and financial terms, with 41% unsure about financing, interest rates, and homebuying terminology.

Bank of America aims to support low- and moderate-income homebuyers through its $15 billion Community Homeownership Commitment, offering up to $17,500 in grants for down payments and closing costs.

Positive

• 70% of prospective homebuyers fear renting's long-term financial consequences, indicating potential future demand for homeownership.
• 76% of respondents plan to buy a home within the next five years, showing a strong long-term market.
• Bank of America's $15 billion Community Homeownership Commitment supports low- and moderate-income buyers, reinforcing the bank's role in the housing market.
• 85% of granted funds going to first-time homebuyers could stimulate future customer loyalty.
• High interest in homebuying despite current economic conditions suggests resilience in the housing market.

Negative

• 57% of respondents are unsure whether it is a good time to buy a home, up from 48% last year, indicating market hesitation.
• 62% of first-time homebuyers are uncertain about purchasing, reflecting significant market entry barriers.
• 41% of prospective buyers lack confidence in understanding homebuying financing and terminology, highlighting a knowledge gap.
• Baby boomers increasingly favor renting, with 80% preferring it over buying, potentially reducing demand in the senior market segment.

Insights

Financial Analyst

The latest Homebuyer Insights Report from Bank of America highlights some key trends and challenges that could influence the housing market. Interest rates and home prices remain significant barriers, making 57% of respondents unsure about whether it’s a good time to buy. This level of uncertainty has increased from 48% last year, indicating a growing caution in the market.

From a financial perspective, investors should note the complex interplay between renting and buying. Higher rent prices could lead to an increased demand for homeownership in the long term, but current high costs and interest rates may delay that decision. This dynamic can impact real estate investment trusts (REITs) and housing-related stocks.

Furthermore, the increased confidence in rental markets, particularly among boomers who prefer renting for its flexibility and lower maintenance costs, suggests a potential shift in demand for rental properties. However, the report also notes a significant regional variation, with Southern cities seeing large population inflows. This could boost housing markets in those areas, presenting localized investment opportunities.

Investors should also consider the long-term emotional value of homeownership, which can drive purchasing decisions despite short-term financial pressures. The high level of prospective homebuyers planning to buy within five years (76%) indicates that the demand for homeownership is robust, even if it's delayed.

Market Research Analyst

The report sheds light on consumer sentiment, a critical factor that could influence the real estate market. The fact that 70% of prospective homebuyers feel that renting is detrimental to their financial future reveals a fundamental belief in the value of homeownership as a long-term investment.

This sentiment is contrasted by the 80% of baby boomer renters who prefer renting, showing a generational divide in housing preferences. This divide could affect market segmentation strategies for real estate companies and financial institutions targeting these different demographic groups.

The report also emphasizes a significant amount of confusion and lack of confidence among prospective buyers regarding the home buying process, with 41% not confident in understanding financing or securing a mortgage. This suggests an opportunity for financial institutions to provide educational resources and support. Bank of America’s Community Homeownership Commitment, which includes up to $17,500 in combined grants for down payments and closing costs, aims to address these concerns and could attract more first-time buyers into the market.

More boomers favor renting, with little interest in buying a home

CHARLOTTE, N.C., May 15, 2024 /PRNewswire/ -- Many prospective homebuyers fear the long-term consequences of renting, including 70% who feel they're not making a long-term investment in their future, and 72% who worry that rent increases could affect their current and long-term finances, according to a new Bank of America Homebuyer Insights Report (HBIR), conducted in partnership with Bank of America Institute.

However, with higher interest rates and home prices, uncertainty over whether to keep renting or to buy a home in the current market has grown. Today, 57% of respondents are unsure whether it's a good time to buy, compared to 48% at this time last year. This trend is even more prevalent among first-time homebuyers, as 62% shared they're unsure what to do.

"Given the highly competitive homebuying market, renters are unsure whether now is the right time to buy," says Matt Vernon, Head of Consumer Lending at Bank of America. "That said, our research continues to show that the vast majority of prospective homebuyers overwhelmingly feel buying a home, now or in the future, is the best decision for them in the long run."  

These decisions are further complicated by the continued population flows across the United States. In its quarterly On the move publication, Bank of America Institute notes that cities in the South continued to see large inflows of people as of the first quarter of 2024, often fueled by the younger generations.

The Institute finds that while housing supply has increased in response to population change, the supply of rental properties in some regions may not be sufficient to account for growing populations. Against this background, while 37% of respondents in the HBIR say renting is the better choice right now, they still plan to take steps towards buying a home in the near future. Among prospective buyers, 81% said that renting is temporary and suits their current stage in life, and 76% are planning to buy a home within the next five years.

The Emotional Value of Owning vs. Renting
New insights from this research show that most homeowners and prospective homebuyers agree on the many financial and emotional benefits of homeownership—benefits that two-thirds (66%) of renters feel they're losing out on.

• 89% of homeowners said that the idea of owning a home brings emotional fulfillment rather than added stress
• 67% of prospective homebuyers would prefer to own a home for the sense of permanence and emotional stability it provides, rather than the flexibility of renting
• 58% of prospective homebuyers said that owning a home is the best long-term decision for them to have control over their own living space

However, baby boomers are an anomaly. Today, 80% of baby boomer renters believe that it's better to rent than to buy a home in the current environment – up from 63% a year ago. This can be attributed in part to the fact that baby boomers say:

• They appreciate the freedom from property maintenance and repair work that renting offers (90%)
• They prefer to avoid the financial responsibilities and stresses associated with homeownership (87%)
• And 83% value the sense of freedom to move when and where they want to that comes with renting instead of owning a home

Lacking Confidence & Avoiding Mistakes
Exacerbating the difficulties presented by higher interest rates and home prices, many prospective buyers feel that they lack the confidence needed to begin their homebuying journey, and don't want to make a mistake.

• 41% are not confident in their understanding of how to finance or secure a mortgage
• 41% are not confident in their understanding of interest rates
• 39% are not confident they understand homebuying terminology
• 53% are not confident in their understanding of homebuying grant programs

"Grants are a valuable resource to help bridge the gap between your savings and a downpayment," shares Vernon. "Meeting with a lending specialist can be a great first step to see if you qualify for assistance programs, such as Bank of America's down payment and closing cost grants."

However, some buyers do feel they made mistakes during the homebuying process. Two-thirds (66%) of current homeowners said they would have done something differently when buying their first home, including: saving more for a down payment (26%), spending more time shopping around (19%) and considering other neighborhoods (18%), and saving money for new appliances or other updates they wanted to make to the home (17%).

Community Homeownership Commitment™
Bank of America can help. The Bank of America Community Homeownership Commitment, a $15 billion commitment, aims to help low- and moderate-income homebuyers across the country begin to build their personal wealth and family legacy through the power of homeownership. The program includes a combination of specially designed products, resources and expertise as well as one of the most generous grant programs in the industry. Bank of America offers up to $17,500 in combined down payment and closing costs grants and has already granted nearly $467 million in those grants as of the first quarter 2024, with 85% of those grants going to first-time homebuyers.

About Bank of America's Homebuyer Insights Report
Sparks Research conducted a national online survey on behalf of Bank of America between March 5th and March 18th, 2024. A total of 2,000 surveys (1000 homeowners / 1000 renters) were completed with adults 18 years old or older, who make or share in household financial decisions, and who currently own a home/previously owned a home or plan to own a home in the future. In addition, 200 additional surveys were conducted with first time homeowners (for a total of 615 responses), and 200 additional surveys were conducted with prospective first-time homeowners (for a total of 972 responses). The margin of error for the national quota is +/- 2.2 percent at the 95 percent confidence level. Select questions allowed respondents to choose more than one answer, resulting in responses that may equate to more than 100 percent. 

About Bank of America Institute
Bank of America Institute is dedicated to uncovering powerful insights that move business and society forward. Established in 2022, the Institute is a think tank that draws on data and analyses from across the bank and the world to provide timely and original perspectives on the economy, sustainability, and global transformation. The Institute leverages the depth and breadth of the bank's proprietary data, from approximately 68 million consumer and small business clients, 56 million verified digital users, $4.2 trillion in total payments in 2022 and $1.4 trillion in consumer and wealth management deposits. From this robust data set, the Institute provides a unique perspective on the health of the economy. It also elevates thought leadership from throughout the bank that addresses long-term trends and shares these findings with the general public.

Bank of America
Bank of America is one of the world's leading financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 69 million consumer and small business clients with approximately 3,800 retail financial centers, approximately 15,000 ATMs (automated teller machines) and award-winning digital banking with approximately 57 million verified digital users. Bank of America is a global leader in wealth management, corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business households through a suite of innovative, easy-to-use online products and services. The company serves clients through operations across the United States, its territories and more than 35 countries. Bank of America Corporation stock is listed on the New York Stock Exchange (NYSE: BAC).

For more Bank of America news, including dividend announcements and other important information, visit the Bank of America newsroom and register for news email alerts.

Reporters may contact:

Susan Atran, Bank of America
Phone: 1.646.599.3300
susan.atran@bofa.com 

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SOURCE Bank of America Corporation

FAQ

What percentage of prospective homebuyers believe renting can hurt their financial future according to BAC's report?

70% of prospective homebuyers believe renting can negatively impact their financial future.

How many prospective homebuyers are uncertain about buying a home in the current market?

57% of respondents are unsure if it's a good time to buy a home, up from 48% last year.

What percentage of first-time homebuyers are uncertain about purchasing a home?

62% of first-time homebuyers are unsure whether to buy a home in the current market.

How does BAC's Community Homeownership Commitment support homebuyers?

Bank of America's $15 billion Community Homeownership Commitment offers up to $17,500 in down payment and closing cost grants.

Why do baby boomers prefer renting over buying according to BAC's report?

80% of baby boomer renters prefer renting due to freedom from property maintenance and financial responsibilities.