Millennials’ homeownership dream is at risk
Aftermath of housing crisis, recession makes ownership a tougher proposition
Doing the math left them uneasy.
The stress of it all led to a near-meltdown one day on a trip to Home Depot.
At their most optimistic, affording a house seemed within the realm of possibility for Elizabeth and David Glidden, both 26. They had saved enough for a 10% down payment. But as they searched for a home, ownership became tenuous when they considered their monthly expenses.
Buying meant giving up a rela- tively inexpensive rent-controlled apartment — a one bedroom for $2,150 a month, including utilities. On top of that, the neighborhoods they could afford would add transportation costs of up to $300 a month because they no longer would be able to walk to work. If they bought a condo, there would also be monthly association fees.
Young buyers are caught in a quandary. Owning a home has many benefits, including tax breaks and the potential to build value, plus mortgage payments are often lower than rent for a comparable home, especially over the long term. But in some cities, rent can be so high it’s difficult, if not impossible, to save the recommended 20% down payment.
Millennials want to buy homes. That’s a good thing.
“Long term, homeownership is a key part of household wealth creation,” says Jonathan Smoke, chief economist for Realtor.com. “If young people are not getting into homeownership at the same stage, it’s going to put them further behind from a wealth and retirement perspective.”
Not to mention the entire housing ecosystem, as Smoke refers to it, falls apart if the cycle of upgrading and then eventually downsizing homes ceases.
Homeownership reverberates through the economy in other ways, too, as homeowners undergo renovations, take on projects that lead to trips to home-improvement stores or buy new furniture and appliances. It’s pretty simple: Stores such as Home Depot and Lowe’s and tradespeople such as remodelers, painters, roofers and landscapers have more work when lots of people are buying and selling homes.
The National Association of Realtors estimates that every two home sales create one job, and that as of 2014 each home sale at the median led to more than $72,000 in economic impact, accounting for factors such as moving expenses, new furniture and the fact that income earned by housing professionals on a home sale gets recirculated back into the economy.
And some researchers point to the social benefits of a healthy housing market. Homeowners become more engaged members of society, with greater civic participation and children of homeowners doing better in school and graduating high school at a higher rate. But the challenges presented by the current housing market to first-time buyers have put many on a prolonged path to the American dream — even for a couple such as the Gliddens, who have no debt, a dual-income household and more than $50,000 in savings.
“The more serious you get, the more questions you have of, is this the right thing to do?” David says. “That’s sort of been weighing on my mind. I don’t know. I don’t know if this is the right thing.”
There are a lot of places to lay blame, and it’s not just high rents. Many point to crushing student debt loads. But the real culprits, experts say, are the housing crisis and the Great Recession, which forced many Americans into foreclosure. Many who didn’t lose their homes found themselves with negative equity — owing more to their lender than a fair market price. This is commonly referred to as being underwater in a mortgage, and when homeowners feel like they are drowning, they tend to stay put. That leads to not enough affordable supply to meet the demand.
“The biggest single impediment right now is affordable housing, finding homes that are affordable to Millennials,” says Svenja Gudell, chief economist with homebuying site Zillow, pointing to the fact that, as of March, inventory was down nearly 6% nationally compared with this time last year.
Elizabeth and David started to lose hope. Elizabeth had been popping into open houses for about a year, but the couple’s search became more serious in the past eight months. In all, Elizabeth estimates they’d seen between 40 and 50 units, one of which they had put an offer on that fell through.
“I’m not going to sacrifice budget at all,” she says. “At the end of the day, our financial wellness is the most important, and if it doesn’t make financial sense, we’re not going to buy.”
After repeatedly failing to find a place that fit both their budget and location requirements, by February the couple was ready to give up. Many young people have given up — at least for now. Homeownership rates among people under 35 are on the decline, and it’s not clear when that trend will reverse.
For David and Elizabeth, suspending their search wasn’t an enticing option. They worried they’d get priced out of one of the country’s more competitive markets as it grows in the coming years.
“We’ve crunched a lot of numbers and it almost always comes out 50/50, does it make sense, does it not make sense” to buy, Elizabeth says.
Persistence paid off for the couple. After months of searching they found a condo and negotiated the price down a few thousand dollars, to $477,375 — which was over their initial budget of $400,000 to $450,000. They decided to go for it because it had everything they were looking for, including two bedrooms, two baths, an open living space that would fit their furniture, the bonus of a completely updated kitchen, plus it was in a prime location they loved.
“We hadn’t seen anything this nice that fit all of our criteria before,” Elizabeth says. “The second we found a place that was exactly what we wanted, all of a sudden that much money made sense.”
USA TODAY was with them on the final leg of their search, through inspection, closing and move-in day.
“I just want to have something that’s mine,” Elizabeth says. “There’s a sense of wanting to be able to take care of something forever and make it yours over time that you don’t get when you rent.”