Why Amer­i­cans are wait­ing longer than ever to buy a 1st home

The China Post - - WORLD BUSINESS - BY JOSH BOAK

Short of cash and un­set­tled in their ca­reers, young Amer­i­cans are wait­ing longer than ever to buy their first homes.

The typ­i­cal first- timer now rents for six years be­fore buy­ing a home, up from 2.6 years in the early 1970s, ac­cord­ing to a new anal­y­sis by the real es­tate data firm Zil­low. The me­dian first-time buyer is age 33 — in the up­per range of the mil­len­nial gen­er­a­tion, which roughly spans ages 18 to 34. A gen­er­a­tion ago, the me­dian first-timer was about three years younger.

The de­lay re­flects a trend that cuts to the heart of the fi­nan­cial chal­lenges fac­ing mil­len­ni­als: Renters are strug­gling to save for down pay­ments. In­creas­ingly, too, they’re fac­ing de­lays in some key land­marks of adult­hood, from mar­riage and chil­dren to a sta­ble ca­reer, ac­cord­ing to in­dus­try and gov­ern­ment re­ports.

These shifts help ex­plain why home own­er­ship, long a source of mid­dle class iden­tity and eco­nomic op­por­tu­nity, has started to de­cline. The share of the U.S. pop­u­la­tion who own homes has slid to 63.4 per­cent, a 48-year low, ac­cord­ing to the U.S. Cen­sus Bureau.

And when young adults do sign the deed, their pur­chase price is now sub­stan­tially more, rel­a­tive to their in­come, than it was decades ago. First-time buy- ers are pay­ing a me­dian price of US$140,238, nearly 2.6 times their in­come. In the early 1970s, the starter home was just 1.7 times in­come.

Mil­len­ni­als are “still very in­ter­ested in buy­ing a house, but they’re de­lay­ing that de­ci­sion,” said Svenja Gudell, chief economist at Zil­low. “Once 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.”

Mil­len­ni­als in­creas­ingly find them­selves in a sit­u­a­tion like that of Lou Flores, a 30-year-old port­fo­lio man­ager in San Diego. He shares a one-bed­room apart­ment with his boyfriend, pay­ing US$1,400 a month to live within walk­ing dis­tance of Bal­boa Park and the zoo.

Flores’ par­ents had built their nest by steadily up­grad­ing their homes, in­grain­ing him with the no­tion that “rent­ing was a waste of money.” But the me­dian home in San Diego costs more than US$ 500,000, ac­cord­ing to the area’s as­so­ci­a­tion of Real­tors.

Par­ent’s Fi­nan­cial Back­ing

So Flores fig­ures own­er­ship is at least a few years away. “Here in Cal­i­for­nia, if you’re not mar­ried or with some­one, it’s im­pos­si­ble to buy a home with­out fi­nan­cial back­ing from your par­ents,” Flores said.

Few first- timers around the coun­try can lean on their par­ents. Among home­buy­ers last year un­der age 34, 14 per­cent re­ceived down pay­ment help from fam­ily or friends, ac­cord­ing to a Fed­eral Re­serve sur­vey.

Most first-timers still de­pend on per­sonal sav­ings for at least some of their down pay­ments. But ris­ing rental prices have com­pli­cated the task of sock­ing away money for a down pay­ment. Fu­eled by a surge of renters across all age ranges, rental prices na­tion­ally have grown at roughly twice the pace of av­er­age hourly wage growth, which was a pal­try 2.1 per­cent over the past year.

A re­sult is that those prices are con­sum­ing more in­come. A strik­ing 46 per­cent of renters ages 25 to 34 — the core of the mil­len­nial pop­u­la­tion — spend more than 30 per­cent of their in­comes on rent, up from 40 per­cent a decade ear­lier, ac­cord­ing to a re­port by Har­vard Univer­sity’s Joint Cen­ter of Hous­ing Stud­ies. ( The hous­ing in­dus­try gen­er­ally re­gards a fig­ure above 30 per­cent as fi­nan­cially bur­den­some).

Some of the cost bur­den stems from a shift to­ward peo­ple who en­vi­sion them­selves rent­ing for sev­eral years and there­fore seek­ing the kinds of ameni­ties more com­monly as­so­ci­ated with home own­er­ship. Based on searches for rentals on Rad­Pad in June and July, for ex­am­ple, apart­ments with stain­less steel ap­pli­ances and swimming pools were dis­pro­por­tion­ately pop­u­lar in cities with lower home own­er­ship rates such as Los An­ge­les, Chicago and Washington.

Nearly a fifth of Wash­ing­tonarea searches sought apart­ments with stain­less steel ap­pli­ances, com­pared with 5 per­cent na­tion­wide. More than a third of Chicagoans wanted an apart­ment with a pool, ver­sus 18 per­cent na­tion­ally.

Job se­cu­rity has be­come a more cen­tral con­sid­er­a­tion for first- time buy­ers. The Money Source, a mort­gage len­der and ser­vicer, ex­am­ined ap­pli­ca­tions from 5,404 mil­len­nial home­buy­ers. It found that the buy­ers had av­er­aged nearly 4.5 years in their field of work and had held their cur­rent job for slightly more than three years. Those fig­ures point to how crit­i­cal ca­reer sta­bil­ity has be­come for a gen­er­a­tion that en­tered the work­force dur­ing the Great Re­ces­sion and its slow­growth re­cov­ery.

Hous­ing in­dus­try ex­perts note that sur­veys still show a strong de­sire to buy among mil­len­ni­als, but that their time­lines for pur­chas­ing de­pend on achiev­ing more sta­bil­ity in their ca­reers.

“As long as there is the job mar­ket to sup­port mil­len­ni­als — just as it has for pre­vi­ous gen­er­a­tions — I don’t be­lieve their habits will change,” said Dar­ius Mir­shahzadeh, CEO of The Money Source.

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