Young Americans are waiting longer than ever to buy their first homes. In the early 1970s, first-time homeowners rented for 2.6 years before buying their first house. Today, that number is up to 6 years. The median age for a first-time buyer is 33, three years older than the age for a first-time buyer a generation ago. 33 is also in the upper range for the millennial generations, which covers ages 18 to 34.
Younger generations are waiting longer to buy their first house because they face a new set of financial challenges and changing ages for adulthood “milestones.” Chief concerns among the generation is the simple fact that renters struggle to save for down payments, and many millennials feel unsettled in the early stages of their career. They are also waiting longer to feel established in their profession, get married, and have children—key milestones that often promote homeownership.
Home ownership has been the bedrock of the middle class identity for generations as part of the “American dream.” The delay by many young Americans means that homeownership has started to decline. The, “share of the U.S. population who owns homes has slid to 63.4 percent, a 48-year low, according to the Census Bureau.” Young adults also have a higher purchase price relative to their income than generations before them. First-time buyers pay a median price of $140,238, which is nearly 2.6 times their income. In the 1970s, a starter home was just 1.7 times the amount of income.
The delay does not mean that millennials are not interested in owning a home. In fact, most young adults are very interested in buying a house, they’re just delaying that decision until they feel financially secure. Sven Gudell, chief economist at Zillow explains that, “One they start having kids, they begin looking for homes. We’re also finding that—given how much rental rates are currently rising—a lot of folks are having a hard time saving for a down payment and qualifying for a mortgage.” Rising rental prices complicate the process of saving for a down payment. Since the number of renters has grown, rental prices across the national have grown at nearly double the pace of average hourly wages.
That’s the reality for Lou Flores, a 30 year-old portfolio manager in San Diego. Flores shares his one bedroom apartment and pays $1,400 a month to live near the zoo. Flores’s parents ingrained him with the idea that “renting was a waste of money.” However, the median home in San Diego costs more than half a million dollars, so Flores knows that home ownership is still at least few years away.
Statistics show that nearly 46 percent of renters in the core age of the millennial population, 25 to 34, are spending 30 percent or more of their incomes on rent. Millennials are also focused on job security for first-time homeownership. The Money Source, “a mortgage lender and servicer, examined applications from 5,404 millennial home buyers and found that buyers had averaged nearly 4.5 years in the field of work and had held their current job for slightly more than three years.”
Having a financial plan can help you prepare for a down payment and the big steps towards homeownership. While rising rental rates may make it difficult to save money for that purchase, talking with a financial advisor can help you mitigate those difficulties and plan for your future—financially and personally. Whether it is buying a home, having children, or figuring out retirement, an advisor at Apex Financial Advisors can help you meet those milestones and grow your personal wealth.