Born between the early 1980’s and early 2000’s the millennial generation has been slow to enter the housing market. The increase in rental rates over the last few years, along with steady increases in home prices have a few millennials venturing into home ownership but at a slow drip, not a dead run. Several factors have led to their lack of home ownership. It had begun to slide, even before the 2008 market meltdown and ownership by millennials have been slow to increase, as the housing market has rebounded.
Are house values pricing millennials out of home ownership?
The market has had a partial effect on millennial;s purchasing homes but as big, a factor is their attitude toward home ownership and the idea of putting down roots. Where the former generation, baby boomers, was all about home ownership and employment at the same job from the time they start working until they retire, millennials are more flexible in their lifestyles. This includes their attitude about where they live and they like convenience.
How are current house values affecting millennials?
In many areas of the country, monthly rental increases are outpacing a rise in salary for millennials. Combine this with other increases in the cost of daily living and it makes it hard to save the 20 percent down payment required by many of today’s lenders. With the increase in home values across the country that 20 percent equates to a down payment of approximately $40,000 to purchase a $200,000 home. That’s a chunk of change and a goal that many find hard to reach.
Consider this, the median list price for a home in San Francisco is $998,000. Almost a cool million, and you would need a down payment of $200,000 before a lender would give you a glance. Compare this to the median list price in Atlanta, GA of around $210,000 but you will still need a sizable down payment. Both of these scenarios shed a little light on why millennials aren’t buying.
Along with high rents, home values have almost reached pre-crash numbers. Both cities mentioned have seen steady, year over year increases in home prices for the last five years. At the same time, many millennials are in cities where they have chosen to work and are priced out of their local market.
Another issue is the $100 billion in foreign investments of 2015, eight percent of the market. High sales in previous years, when foreclosures could be snatched up in batches flipped and sold or turned into rentals, by local and foreign investors has given us a deluge of rentals with few homes remaining for first-time home buyers and those moving up. Inventories are low, which drives prices up and even builders have increased the price of new homes due to the high demand for housing.
How can a millennial overcome these market obstacles?
Although home values have out-priced millennials spending power in many areas of the country, one way to overcome these increases is to move to the suburbs. You may have a commute, but homes in the suburbs are often less expensive than those in the city. For millennials with growing families, the suburbs may be a better place to raise children, as even though homes may cost less, they tend to be more spacious and include yards. This is feasible if you can find a suburb within a reasonable commute to your job. Another way to get into a home affordably is by purchasing a condominium. Less expensive than single-family homes, first-time home buyers and families find their convenience appealing.
Another way for millennials to get out of the city and become homeowners is with low and no down payment loans. They are harder than ever to obtain unless you have exceptional credit and fit the criteria of the programs that offer them.
The FHA offers loans to qualifying applicants with a 3.5 percent down payment. That decreases that $40,000 down, on a conventional loan, to a very manageable $7,000. This puts home ownership within reach of first-time home buyers and those who want to trade up.
If you are a veteran and meet the requirements, you may be eligible for a VA loan. As one of the few no down payment loans on the market, lenders are favorable toward VA loans as the U.S. Government guarantees them in the event you default on your loan. Millennials who are eligible for VA loans will find favorable rates, terms, and loans of up to $417,000. This cap is raised in cities like San Francisco, and others with high median home prices.
Another no down payment option, for millennials who don’t mind a rural lifestyle, the USDA offers rural development loans to those in rural areas. However, a rural area may be a suburb near you and meet the criteria for a USDA loan. Check out their maps and you may find that the neighborhood that you most desire is eligible for a USDA loan, if you meet the requirements.
Are house values really the problem?
Yes, it is part of the problem combined with their attitude toward home ownership. The fact that loans have become more difficult to obtain has also been a factor. Combine that with lower inventories of starter homes, and homes below $250,000 in many markets, and you have number of factor that are affecting millennials purchasing homes. However, rapidly rising home values has been a big factor in their not purchasing homes.
2 Point Highlight
Although home values have out priced millennials spending power in many areas of the country, one way to overcome these increases is to move to the suburbs.
The increase of rental rates over the last few years along with steady increases in home prices have a few millennials venturing into home ownership but at a slow drip, not a dead run.
