WASHINGTON – Short of cash and unsettled in their careers, young Americans are waiting longer than ever to buy their first homes.
The typical first-timer now rents for six years before buying a home, up from 2.6 years in the early 1970s, according to a new analysis by the real estate data firm Zillow. The median first-time buyer is age 33 – in the upper range of the millennial generation, which roughly spans ages 18 to 34. A generation ago, the median first-timer was about three years younger.
The delay reflects a trend that cuts to the heart of the financial challenges facing millennials: Renters are struggling to save for down payments. Increasingly, too, they’re facing delays in some key landmarks of adulthood, from marriage and children to a stable career, according to industry and government reports.
These shifts help explain why homeownership, long a source of middle-class identity and economic opportunity, has started to decline. The share of the U.S. population who own homes has slid to 63.4 percent, a 48-year low, according to the Census Bureau.
And when young adults do sign the deed, their purchase price is now substantially more, relative to their income, than it was decades ago. First-time buyers are paying a median price of $140,238, nearly 2.6 times their income. In the early 1970s, the starter home was just 1.7 times their income.
Millennials are “still very interested in buying a house, but they’re delaying that decision,” said Svenja Gudell, chief economist at Zillow. “Once they start having kids, they begin looking for homes. We’re also finding that – given how much rental rates are currently rising – a lot of folks are having a hard time saving for a down payment and qualifying for a mortgage.”
Millennials increasingly find themselves in a situation similar to Lou Flores, a 30-year-old portfolio manager in San Diego. He shares a one-bedroom apartment with his boyfriend, paying $1,400 a month to live within walking distance of Balboa Park and the zoo.
Flores’ parents had built their nest egg by steadily upgrading their homes, ingraining him with the notion that “renting was a waste of money.” But the median home in San Diego costs more than a half million dollars, according to the area’s association of Realtors.
So Flores figures ownership is at least a few years away.
“Here in California, if you’re not married or with someone, it’s impossible to buy a home without financial backing from your parents,” Flores said.
Few first-timers around the country can lean on their parents. Among homebuyers last year younger than 34, 14 percent received down-payment help from family or friends, according to a Federal Reserve survey.
Most first-timers still depend on personal savings for at least some of their down payments. But rising rental prices have complicated the task of socking away money for a down payment. Fueled by a surge of renters across all age ranges, rental prices nationally have grown at roughly twice the pace of average hourly wage growth, which was a paltry 2.1 percent over the past year.
A result is that those prices are consuming more income. A striking 46 percent of renters ages 25 to 34 – the core of the millennial population – spend more than 30 percent of their incomes on rent, up from 40 percent a decade earlier, according to a report by Harvard University’s Joint Center of Housing Studies. (The housing industry generally regards a figure above 30 percent as financially burdensome.)
Some of the cost burden stems from a shift toward people who envision themselves renting for several years and therefore seeking the kinds of amenities more commonly associated with home ownership. Based on searches for rentals on RadPad in June and July, for example, apartments with stainless-steel appliances and swimming pools were disproportionately popular in cities with lower homeownership rates such as Los Angeles, Chicago and Washington.
Nearly a fifth of Washington-area searches sought apartments with stainless-steel appliances, compared with 5 percent nationwide. More than a third of Chicagoans wanted an apartment with a pool, versus 18 percent nationally.
Job security has become a more central consideration for first-time buyers. The Money Source, a mortgage lender and servicer, examined applications from 5,404 millennial homebuyers. It found that the buyers had averaged nearly 4.5 years in their field of work and had held their current job for slightly more than three years. Those figures point to how critical career stability has become for a generation that entered the workforce during the Great Recession and its slow-growth recovery.
Housing industry experts note that surveys still show a strong desire to buy among millennials but that their timelines for purchasing depend on achieving more stability in their careers.
“As long as there is the job market to support millennials – just as it has for previous generations – I don’t believe their habits will change,” said Darius Mirshahzadeh, CEO of The Money Source.
Where are millennials struggling?
By JOSH BOAK
Associated Press
WASHINGTON – Say this about New York: If you can afford a first home there, you can probably afford one anywhere.
The same is true for San Francisco and, to a lesser extent, other hot job markets around the country for America’s millennial adults, who range in age from roughly 18 to 34. The challenge is that few millennials earn enough money to buy a home in these locales.
Prices have climbed to increasingly unaffordable levels while incomes have remained relatively flat. A result is that younger adults are renting for longer periods before buying their first home. A new analysis by the real estate firm Zillow found that the typical income for a first-time buyer is $54,340, pretty much the same as it was in the late 1970s after adjusting for inflation.
Over the same period, the median home price for this group, after inflation, has surged 42 percent to $140,328. The problem is that your situation can vary widely depending on where you live.
The median 33-year-old who is buying a first home spends 2.6 times his or her income on the property. Yet that looks like a relative bargain compared with New York, San Francisco and several other leading job markets. Zillow found that the price-to-income ratio in those areas is high for practically everyone – not just first-time buyers – meaning many have no choice but to keep renting.
Here are the metro areas where jobs are relatively plentiful but median home values significantly exceed the typical incomes:
Median price to income ratio
Los Angeles 8.75
San Francisco 8.56
San Diego 7.42
New York 5.71
Boston 4.89
Seattle 4.78
Portland, Oregon 4.56
Miami 4.4
Denver 4.32
United States 3.31
