Don’t Know If You Should Buy a House? You’re Not Alone
Buying a home is a huge step — one of life’s biggest milestones, by many counts. But it’s also an incredibly stressful, expensive, and drawn-out process. It’s no wonder that so many people, particularly younger people, are putting it off. In fact, first-time home-buyers are older than ever, according to reports from the Associated Press, and the major concern is that the trend is pointing to some deeper problems within the economy.
Per the AP, which cites data from the real estate firm Zillow, first-time home-buyers in the United States spend six years as renters before taking the plunge into homeownership. By that time, they are an average of 33 years old. According to Zillow’s numbers, that’s three years older than first-time buyers in the preceding generation, which would have been Generation X. What does it all mean? That there are some underlying issues with the economy, as has been oft-discussed even since the economic rebound over the past several years.
As for why millennials, who range in age from roughly 18 to the mid-thirties, are waiting so long to buy homes, the answer is pretty clear. They can’t. The fact that millennials are heavily in debt, strapped for cash, and still trying to find stable careers are the most obvious factors, and as a result, homeownership in the U.S. has hit an all-time low.
Young adults are finding it hard to save for down payments, while they’re also fighting for higher wages, battling enormous student debt, and facing increasing costs in rent. These are the same elements that are having impacts on things like birth rates, causing young adults to hold off on getting married and starting families.
The fact is, the economy is drastically different now than it was for previous generations, and the amalgam of issues is manifesting in these issues we’re currently seeing. Namely, lower homeownership rates, lower birth rates, and a record number of adult children still living with their parents.
Economic issues aside, another big reason millennials are putting off a home purchase is the simple fact that houses are expensive. A lot more expensive than in the past. According to the AP, millennial homebuyers are looking at a median price of more than $140,000, which is 2.6 times their average annual income. That compares to 1.7 times the average income in the 1970s.
For those of you wondering where you can find a house for $140,000, that leads us down another troubled path. Many millennials are making a beeline for expensive cities on the coasts, like New York, Boston, Los Angeles, San Francisco, etc. The reasoning is rather simple — these cities are where the jobs are, and are more or less the economic engines of the country. But with so many people heading for these cities, the demand for housing goes way up, and the supply is still too low to accommodate the demand. Thus, insane real estate prices.
Now, consider the fact that the average millennial is earning around $35,000 per year, and it becomes rather clear that homeownership is but a pipe dream for a lot of younger adults. Oh, and don’t forget about the average level of student debt, which has crept above $30,000 for a four-year degree.
When you put all the pieces together, buying a home, especially in a high-demand area, is nearly impossible. Just to save up for the traditional 20% down payment, you would need to have hundreds of thousands of dollars saved up, in the most extreme cases. You also can’t forget that these potential homebuyers all grew up getting burned by the Financial Crisis and Great Recession, so it may be difficult for them to pony up the cash for a house that may be overvalued, leaving them underwater.
With all of this in mind, it’s not much of a mystery as to why first-time home-buyers are older than ever. The current economic conditions all but demand it, and there is plenty of reason for millennials to hold off. In most cases, however, they might not have much of a choice.
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