Household Economic Well-Being: U.S. Households Increasingly Optimistic

By Robert Dietz

According to a Federal Reserve analysis, U.S. households surveyed during October 2014 reported only modest improvements with respect to economic well-being but felt increasingly optimistic about the future.

The Survey of Household Economics and Decision making (SHED), first conducted in 2013, complements the triennial Survey of Consumer Finances, the Federal Reserve’s key report on household wealth.

Among the housing-focused findings of the report:

  • 74 percent of homeowners reported “doing okay” or “living comfortably,” in contrast to only 48 percent of renters
  • 10 percent of respondents reported living with parents, compared to 5 percent who are living with a roommate

The report details a number of motivations for renting a home, including challenges associated with attaining homeownership:

  • 81 percent of renters indicate that they would prefer to own if they could afford to do so
  • 50 percent of renters reported that they lack the funds for a downpayment
  • 31 percent of renters noted that they could not qualify for a mortgage

Among other reasons for renting:

  • 27 percent of renters revealed it was cheaper for their household
  • 25 percent thought renting was more convenient
  • Only 12 percent preferred renting
  • 9 percent of current renters are actively looking to buy a home

There were noticeable differences among income classes for reasons to rent.

For renters earning less than $40,000 a year:

  • 35 percent reported they were unable to qualify for a mortgage
  • 52 percent indicated that they could not amass a downpayment

For renters earning more than $100,000 a year:

  • 39 percent believed renting was more convenient
  • 17 percent preferred renting to owning
  • 29 percent planned on moving in the near-term

There were also differences across age classes.

For renters ages 18 to 29:

  • 36 percent plan on moving soon
  • 13 percent were looking to buy

For renters above age 60:

  • 35 percent found it cheaper to rent
  • 26 percent preferred renting over homeownership

Among homeowners, the median tenure of homeownership was 12 years. As to reasons for owning a home:

  • 44 percent says ownership allowed building home equity
  • 20 percent liked the certainty associated with costs
  • All total, 67 percent of homeowners preferred owning for financial reasons
  • 83 percent also cited at least one non-financial reason
  • 72 percent simply preferred to own
  • 43 percent noted there are fewer rules and more ability to customize their residence
  • 23 percent revealed they did not like moving

Most homeowners expressed optimism regarding home values:

  • 43 percent thought their home gained value over the prior year
  • Only 6 percent believed their home would lose value over the next year

The survey found that 14 percent of mortgage holders reported owing more than the value of their home however.

The survey also provided another data point concerning sources of downpayments. For buyers purchasing between 2011 and 2014:

  • 52.6 percent used personal savings
  • 29.3 percent used equity from a previous home
  • 15.3 percent used a loan/gift from family/friends

Because the survey followed-up on an earlier 2013 study, additional year-over-year findings were also available:

  • Only one-third of renters in 2013 who noted they were looking to buy actually purchased a home (and only 3 percent of renters who reported not looking in turn made a purchase)
  • Among households who transitioned to renting, many viewed it as a short-term situation
  • 26 percent of new renters who owned a home in 2013 were looking to buy
  • Among renters who previously owned a home, only 17 percent reported renting was more convenient

In terms of non-housing findings, households had modest expectations:

  • 65 percent of households noted they were doing “okay” or living comfortably”
  • 49 percent of part-time workers preferred to work more hours at their current wage
  • 29 percent of households expected income growth in the coming year (compared to only 21 percent in 2013)

The Federal Reserve analysis stated that households faced fragile economic conditions, with 47 percent of survey respondents stating that they could not cover an emergency expense of $400. One-fifth of households revealed that their spending exceeded income over the prior year. 23 percent of adults also reported having student loan debt.

With respect to retirement, 39 percent of currently non-retired households noted thy have given no or little thought to financial planning and 31 percent had no savings or pension.

This post was originally published on NAHB’s blog, Eye on Housing.

Reprinted with permission from RISMedia. ©2015. All rights reserved.

About FineHomesDigest

The Fine Homes Team, Mark Finchem, Associate Broker with Long Realty Company, provides service to buyers, seller and builders where fine homes are concerned. With extensive experience in residential real estate transactions we can help you with the home you'd rather have.
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