The housing market has been booming as of late. A tight housing supply paired with buyers motivated to either purchase their first home or upsize has pushed prices upward. While the overall market is doing well during the summer buying season, there is one group that is less able to participate in the boom than others.
Millennials, the generation that became adults around the turn of the century, are finding it difficult to buy their first homes. Homeownership for adults under the age of 35 is at its lowest level since 1982. First-time buyers across all ages make up just 30 percent of all homeowners. One explanation for their small share in homeownership is explained by perception vs. reality. A recent survey by Apartment List of 30,000 United States renters revealed that millennials are unclear on how much they need for a down payment.Consider San Francisco, where the average 20 percent down payment (which allows a buyer to avoid paying principal mortgage insurance or PMI) is $142,800. But renters surveyed said they thought they would need $69,650. Greenfield’s west coast home of Seattle placed second on the list of the biggest discrepancies between down payment expectation and reality. Renters in Seattle expected to need less than $29,000 for a down payment on a starter home. However, buyers actually need nearly $50,000 for a down payment.
Even if millennials understand the cost involved in buying a home, actually having the money to pay for the house is a different story. Nearly 80 percent of the respondents said that they are waiting more than two years to buy their first home. Of those who said they are waiting to buy, 77 percent cited the inability to afford a home as their main reason.
In the past few years, the economy has made great strides in recovering from the economic downturn that began in 2008. From 2000 to 2014, the median household income for those aged 25-34 has dropped $7,000, from $61,000 to $54,000. Meanwhile, home price growth is closer to pre-downturn levels.
Young adults do understand the need to save for a down payment. The problem is in saving enough, as lower incomes, higher prices, and student loan debt preclude an ability to save a meaningful sum. More than 50 percent of those surveyed said that they were waiting to buy a home because of looming student loans. Most millennials had only $5,830 saved for a down payment, far below what is needed in most metro markets.
While there are definitely obstacles for younger adults, potential buyers can work to cut down their debt-to-income ratio and to save sufficiently as the economy rebounds. Do you see millennials becoming more of a buying force in the real estate market? Let us know your thoughts in the comments.