According to the Census Bureau, the homeownership rate for those under the age of 35 is currently at 34.3%. That’s significantly lower than the pre-recession level of 43%. A new study conducted by Apartment List revealed that 80% of apartment-dwelling millennials (those born between 1982-2004) would, given the right circumstances, become first-time home buyers instead of making monthly rent payments.
Whether they can afford to do that, however, is another question completely. With housing inventories as tight as they are today, prices continue to escalate and leave out would-be millennial homebuyers.
Researchers surveyed 24,000 renting millennials across the country and discovered that close to 70% of them have saved less than $1,000 for a down payment. Only 15% have put away $5,000 and only 29% are regularly saving a minimum of $200 each month to eventually put towards a down payment for purchasing a home or condo.
Researchers further uncovered that millennials significantly underestimate how much it will actually cost to be in the position to make a 20% down payment. At their current pace of saving, millennials who intend to put 20% down for an average condo would need to save for at least 19 years in high-priced real estate areas such as Austin, San Diego, San Francisco, Los Angeles, or San Jose. In fact, a smaller down payment doesn’t help much. The study showed that a down payment of only 10% only puts 1 in 3 millennials in a position to have the funds they need in 5 years or less.
The S&P CoreLogic Case-Shiller National Home Price Index in February climbed to an all-time high for a fourth consecutive month. David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, commented, “Housing affordability has declined since 2012 as the pressure of higher prices has been a [greater] factor than stable to lower mortgage rates,” in a statement that accompanied the report.
Vigorous demand for properties for sale and the absence of many reasonable entry-level options have pushed prices to escalate in several parts of the country. Unfortunately, rent prices are also on the rise, prohibiting those currently living in apartments from saving what they need to each month in an effort to gather the minimum down payment.
On the upside, millennials’ expectations for homeownership seem to have toned-down marginally in recent years. The percentage of millennial renters who said they expect to make their next home purchase in the next 3 years has dropped each year since 2014, when a mere 23% of respondents indicated that they intended to wait 5 or more years to buy a home. In the latest report, that number rose to 36%. Affordability concerns were cited by 72% of respondents when asked why they weren’t currently looking to purchase a home.