The Millennial Housing Crisis
More than a quarter of millennials say buying a home is weighed more heavily to their career than starting a family or retiring. Yet with such a high demand for ownership, why is the home ownership of millennials lower than the last two generations? Here are the reasons why and possibly the way to move forward.
The Rent That Will Not Stop Rising
Since May of 2016, the median rent in the United States rose almost 2.8 percent to an average of $1,445 per month. With potential millennial buyers struggling to find a home they can afford, millennials are renting longer to cut costs.“Searching for the ‘right’ home has become a drawn-out affair and rising prices require more savings for a down payment,” says Zillow senior economist Aaron Terrazas. Source With so many millennials hitting the workforce and not able to afford a home, developers are having a hard time keeping up with the property demand. In richer cities, developers are notorious for responding to the rental demand by building high-end properties that do no accommodate for the market, forcing millennials to pay almost more than half of their income on rent. James Burrell, a broker at San Diego County Property Management says rent is increasing 5 to 10 percent at his properties because of utilities, property taxes, and general expenses increasing overall. Source
Down Payments and Debt
Purchasing a home is much more than paying for a place to live; it’s a major investment of both time and money,” said Doyle Williams, Country Financial’s Executive Vice President. “Once you’ve done that, there’s a benefit to being a homeowner: You are building equity with every mortgage payment.” Source Almost half of 18-to-34-year-olds said that affording a down payment for a home was one of the biggest financial barriers. Typically, a 20% down payment is required to buy a home to avoid PMI (private mortgage insurance) . According to census.gov, the median sold home price in June of 2019 was $310,000 dollars; almost a $62,000 down payment that should be fronted before purchasing. On average, 22-to-32-year-olds owe roughly $28,706 dollars in student loan debt that is expected to be a financial burden for at least ten years. For every 10 percent in student loan debt a person holds, their chance of home ownership drops 1 to 2 percent according to the Federal Reserve. Source. If a millennial has more than 36 percent of their income going to pay off debt, they can forget about applying for a mortgage.
FHA Loans and First-Time Home Buyers
There are some options that can help alleviate the pressure in buying a home. FHA loans are one of the most popular mortgage loans used by first-time home buyers due to their low down payment and credit requirements. With a credit score of 580, only a 3.5% down payment is required. This is a great option for millennials that can’t save enough for a 20% down payment and also have below-average credit score. There are some drawbacks with the FHA loan, so make sure you explore all of your options before finalizing any plans.