Will Millennials Be Able to Afford a House?

Will Millennials Be Able to Afford a House?

It seems that many millennials, or people born from the early ‘80s to the early 2000s, are taking longer than the previous generation to purchase their own property.

There are several general reasons for this, but the question is, will they eventually be able to afford a house?

If you’re one of those who want to buy a house but can’t afford it, then you’re not alone.  But that does not mean that you can’t make your dream come true.

Overview

A report by John Burns Real Estate Consulting says that in 2004, home ownership among those aged 25 to 34 years was at 49.5 percent but today, only 39 percent of people in the same age group owns a house.

CNBC also said that the biggest drop in home ownership is among those below 35 years old, falling by 21.2 percent from the second quarter of 2004 to the second quarter of 2016.

Forecast Home Ownership

The prediction is,

the rate of home ownership will continue to drop until the mid of next decade, so it is expected that millennials will be renting for a longer period than their parents might have done.

The overall home ownership in 2004 is almost 70 percent, but the estimate for 2025 is 60.8 percent.  The drop in numbers among millennials will be offset by those born from the ‘70s.

Why are millennials delaying home ownership?

As mentioned earlier, there are many different reasons why millennials are postponing buying real estate, but two of, perhaps, the biggest reasons are:

Student Loans

One of the main reasons why millennials are not able to buy their own properties as early as the previous generation did is because of student loans.

According to another report by CNBC,  those aged 26 to 35, otherwise known as older millennials, are among those with the biggest debts, ranging somewhere from $70,000 to $100,000, and are the ones most likely to delay buying a house.

The National Association of Realtors and the American Student Assistance’s consumer literacy program SALT conducted a survey in April this year.

The 3,000 respondents do not yet own a house but make regular on-time payments for their student loans.

According to the study:

·         71 percent said that the monthly payment for their debts prevent them from purchasing a property.

·         More than 50 percent said that they will have to continue payments for another five years.

·         40 percent of graduates cannot move out of their parents’ house because of their loans.

·         80 percent said that paying off their loans keeps them from saving for a down payment.

Even respondents who earn more than $50,000 per annum said that their loans keep them from saving enough for a down payment.

While this amount is above the median income for one to qualify to buy a home good for one family, these graduates have to dish out hundreds of dollars per month to pay for student loans, which total to thousands after several years.

In other words, if there is no loan, the money could have been put into their real estate investment.

Similarly, those who own a home are hesitant to upgrade because of student loans.

·         Almost 20 percent think it would be too costly to do move.

·         6 percent are still tied with their mortgage because student loans have kept them from putting in more into their home payments.

·         7 percent had issues with student loan payments so their credit had suffered.

Although there are options for low down payment, such as at Wells Fargo and FHA, the amount is often determined by the borrower’s income – and student loans play a part in the process.

Higher Prices

The median price for houses has increased by as much as $40,000 since the late ‘70s but the median income has not changed much; thus, it can be surmised that this has played a big part in why millennials are postponing buying a home.

Along with payments for rent, car loan, student loans, and other expenses like electricity, Internet, phone, gas, clothes, and food, what’s left would generally not be enough to pay for a house.

And often, expenses increase as income increases – newer phone, better car, more delicious food – so some really find it hard to imagine being able to purchase property.

How to Afford a House

Still, it’s not impossible.  If you are one of those who dream of having your own place, you can do some of the tips below:

Save

The biggest challenge in buying a house is the down payment.  Although it may vary, you can expect the amount to be somewhere around 24 percent of the price if you’re aiming for a high-end location.  Therefore, you need to save for this and be prepared to scrimp.

There are many ways to cut down on your expenses, from being wise in your electricity usage to bringing lunch to work instead eating in a restaurant everyday.

You can downgrade your subscription to services that you don’t use much or unsubscribe altogether.

You can also take the bus or train to work, jog or ride a bike instead of going to the gym, and so on.

Expect to also have to save longer if you want a house in a high-priced area.

Consider More Affordable Locations

Not all houses are the same, neither are locations.  There are some areas with real estate properties that are generally more affordable than others.

For instance, you may find the median price for Midwest houses to be $50,000 cheaper than the national median price.

In a press release, Realtor.com revealed the 50 hottest zip codes in 2016 for millennials looking for a house to buy.  The places offer lower median prices while still being in or close to higher-end neighborhoods.

No. 1 is 76148 in Watauga, Texas, with a median price listing of $137,000.  Houses there sell in 17 days.

No. 33 in the list is 67209 Wichita, Kansas, with a median price of $147,442.  The average days that houses spend on the market is 35 days.

The article says that homes in these places are 19 percent less expensive than the surrounding counties and 22 percent cheaper than the nearby metro areas.

So, before you make a final decision, you may want to scout around to find the place that suits you and your budget best.  Remember that houses with a lower purchase price equates to lower down payment.

Research About Available Mortgage Programs

There are also programs out there that would allow you to put less on down payment.  For example, with the government-controlled companies Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, otherwise called Freddie Mac, your down payment can be as little as 3 percent.

Of course, with less down payment, your monthly mortgage will go up.  Also, the longer the payment period, the bigger the interest.

You may want to consider talking to a counseling agency for housing to find out what programs you are qualified for.

You should also try using a mortgage calculator to determine how much you can pay per month.

Remember, even though the trend for millennials is to rent longer and buy a house later, you don’t have to.  You may just be able to get a property in no time.

ratetake

ratetake

Martin - Head of Real Estate and Finance at RateTake
Martin is Head of Real Estate and Finance division at RateTake. He creates content that helps people understand and make the right decisions for their financial future.
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ratetake

Martin is Head of Real Estate and Finance division at RateTake. He creates content that helps people understand and make the right decisions for their financial future.