Millennials may be finally moving out of their parents basement, but don’t expect them to buy a house anytime soon.
It’s not surprising that the millennial generation is putting off the decision to buy a house, and that is assuming they actually decide to buy a house at all.
A new study by ZILLOW shows that Millennials are more likely to rent for a longer time before purchasing a home or even decide that home ownership just is not worth the expense and debt.
During the 1970s, the typical first-time homeowner rented for 2.6 years before buying their first home. Zillow found that since that time, the average rental period has more than doubled to an average of six years renting before purchase.
The median age of the first time homebuyer has also increased to 33.
Millennials taking longer to buy their first home for several reasons:
The economy has been recovering, but it is doing so at a slow pace. Millennials are having a difficult time acquiring the down payment money necessary to purchase a home.
In some cases, millennials are renting places that are expensive enough to make saving difficult. Harvard’s Joint Center of Housing Studies found that 46 percent of millennial renters (ages 25-34) spend over 30 percent of their income on rent. That may be the only housing available, or they may have decided to sacrifice earlier home ownership for a more comfortable rental experience.
Zillow found that first-time homebuyers are paying a median price of $140,238 for their first home, which is 2.6 times their median income. Prices have risen as the inventory of affordable homes has decreased.
Price increases have outpaced the wage increases for most millennials, and that means it takes longer to build up a down payment.
They’re NERVOUS. Millennials saw the effect of the housing crisis in the last decade. Home values declined and debt became a serious problem. As a result, millennials are more worried about diving into the housing market without a stable income and a solid down payment.
First-time homebuyers now average 4.5 years in their field and three years with the same job.
Lenders are nervous as well.
For the most part, no-money down and piggyback loans that financed the down payment are things of the past. Lenders have also tightened credit qualifications.