ATLANTA - The housing market has been slow to recover from the great recession, and one of the main reasons why is the lack of first-time homebuyers. It turns out that Millennials, the generation born between 1980 and 2000, are the problem.
Here to explain why, is Real Estate expert John Adams:
Q: John, what’s this all about?
Millennials may be finally moving out of their parents basement, but don’t expect them to buy a house anytime soon. They put off college, they put off getting married, and they put off having kids.
So it’s not surprising that the millennial generation is putting off the decision to buy a house, and that is assuming they actually decide to buy a house at all.
A new study by ZILLOW shows that Millennials are more likely to rent for a longer time before purchasing a home or even decide that home ownership just is not worth the expense and debt.
During the 1970s, the typical first-time homeowner rented for 2.6 years before buying their first home. Zillow found that since that time, the average rental period has more than doubled to an average of six years renting before purchase.
The median age of the first time homebuyer has also increased to 33.
As the balance tips toward renting, U.S. home ownership has slumped to a 48-year low at 63.4 percent.
Q: So, is that a problem?
Yes it is! The resulting delay in first-time home buying has a ripple effect on the housing market.
Current homeowners can’t upgrade if they dont have anyone to buy their current home. And this has had an overall slowing effect in the real estate market.
Q: Why are millennials taking longer to buy their first home?
I think there are several reasons:
The economy has been recovering, but it is doing so at a slow pace. Millennials are having a difficult time acquiring the down payment money necessary to purchase a home. Increases in rental costs are increasing the savings challenge, even as inflation remains relatively low. Rental costs are rising at approximately twice the rate of wage growth.
In some cases, millennials are renting places that are expensive enough to make saving difficult. Harvard’s Joint Center of Housing Studies found that 46 percent of millennial renters (ages 25-34) spend over 30 percent of their income on rent. That may be the only housing available, or they may have decided to sacrifice earlier home ownership for a more comfortable rental experience.
Zillow found that first-time homebuyers are paying a median price of $140,238 for their first home, which is 2.6 times their median income. Prices have risen as the inventory of affordable homes has decreased.
Price increases have outpaced the wage increases for most millennials, and that means it takes longer to build up a down payment.
They’re NERVOUS. Millennials saw the effect of the housing crisis in the last decade. Home values declined and debt became a serious problem. As a result, millennials are more worried about diving into the housing market without a stable income and a solid down payment.
First-time homebuyers now average 4.5 years in their field and three years with the same job.
Lenders are nervous as well.
For the most part, no-money down and piggyback loans that financed the down payment are things of the past.
Lenders have also tightened credit qualifications in response to the Dodd-Frank reforms.
Loans are loosening up, but it is still not easy to get a loan today.
Q: So what does all this mean?
The bottom line is this: most millennials still want to won a home some day. It’s just that that “some day” may take a little longer than it did in the past.
THE SLUGGISH ECONOMY and weak job market are still hurting us, and growing up during the Great Recession and the housing crisis has made this generation nervous about taking on too much debt.
Q: That may not be an entirely bad idea.
I agree. But I hope that caution leads to financial planning instead of giving up on home ownership.
For most Americans, owning their own home is the best investment they ever make.