Buying a House? The Ugly Numbers You Need to Know About
If you’ve dipped your toes into the real estate market recently, you may have come away with the sense that things are fairly ugly for buyers. Depending on where you are looking, families with six-figure incomes are finding it nearly impossible to find a home they can afford to buy. Yet, in other areas, you can seemingly buy up entire city blocks at a discount.
It’s a wacky post-recession world, and for those looking to finally give up renting and lay down some roots, doing so in an economically viable area is harder than ever. For proof, you just need to look at the numbers.
A report from the Resolution Foundation has found that not only is homeownership at a 30-year low, but that housing costs are eating up a bigger percentage of the average person’s income — meaning that if buying a house was something that was on your radar, it’s going to be harder to do than you may have realized. To sum the 46-page report up: Renting rates are as high as ever, buying a house or owning a home is becoming a pipe dream for more and more Americans, and the increase in housing costs is effectively erasing any gain in wages many working-age households are experiencing.
The report looks at the U.K. housing market, but the trends are easily identified in the States as well. All things considered, it paints a pretty ugly picture for those looking to buy.
If we boil the report’s most important finding down, we’re left with the fact that homeownership is dropping because housing costs have risen at a much faster rate than incomes. As the report points out, “housing costs [are] effectively wiping out most if not all of the modest income gains made by the bottom 56 per cent of working age households over a 13 year period.”
Because of this, it’s become a near-impossible feat for many households to pay their rent and save for a down payment. In some areas of the country specifically, even a six-figure household income isn’t enough to become a homeowner — the housing market is so wildly turbulent that all but those with a lot to spend are on the outside looking in.
What we’re seeing as a result is the millennial generation having an incredible amount of trouble “growing up,” as it were. A lot has been said and written about millennials, and in particular the generation’s tendency to live with their parents well into their 20s (and 30s), and forgo other big purchases, like cars. This even extends to getting married and having children.
A chart from Zillow displays this perfectly:
Though many might think it has to do with shifting generational preferences, this report reinforces what most researchers actually think is going on: Everyone’s broke, and nobody can catch up.
Millennials: Interested in buying a house?
With an entire generation having trouble with housing affordability — not to mention high levels of student debt — the scenario becomes worrying for a number of reasons. First, you’ll have millions of millennials who may become lifelong renters; not a bad thing in its own right, but buying a home is often a solid investment that can pay dividends down the road. Secondly, real estate professionals are going to start having to worry about the troubling trend in homeownership rates.
If prices keep going up, and yet, relatively few people can afford to buy, then something is askew. Is the market not adjusting? What it really comes down to is location.
Even though millennials are having a hard time buying homes, they’re still the largest group of home purchasers in the country. That may seem at odds with all of the doom and gloom we’ve been discussing, but it’s important to remember that there is a flip-side to the areas with insane housing prices: There are other areas where prices are low. For millennials, moving to these areas may be the key to finding an affordable place to live.
The only problem? A lot of these areas are also not as economically explosive and lack the jobs and amenities that potential homeowners desire.