Why millennials aren't rushing to buy homes
Don't call them millennials: Call them renters.
According to a survey from the folks at loan marketplace LendingTree, only 43.4 percent of college-educated millennials ages 24 to 35 own a home. When asked "What would allow you to consider purchasing your first home?" 67.4 percent said they'd need more income. Roughly a third want to move somewhere they like better before buying, 28.7 percent want to pay off student loans before becoming homeowners and 25.7 percent want to put off owning a home until they've traveled, invested or went on charitable missions.
That all lines up with previous data indicating that millennials don't trust banks, are completely averse to investment risk and would rather invest in improving the world than amassing goods for themselves.
But LendingTree's survey -- conducted online in September with the help of 1,009 respondents ages 24 through 35 with at least some college education and an annual household income of at least $25,000 -- goes off the rails a bit by suggesting that only 4.4 percent of non-homeowner millennials have no interest in ever owning a home -- a result likely skewed a bit by being conducted through a lending site. Even LendingTree itself acknowledges that interest likely isn't all it could be.
"As the economy is rebounding, this market segment is still feeling longer-term effects of the recession," said LendingTree founder and CEO Doug Lebda. "Underemployment and low salaries combined with high student debt and uncertainty about the future are a reality that is affecting the housing market. The demand is there, but until this age group sees higher salaries, lower debt levels and feelings of settlement, millennial participation in the housing market will be slow."
Unfortunately, millennials aren't doing themselves any favors by ignoring financial issues that are well withing their control. For example, 21.2 percent of millennials said they do not know their current credit score, and another 11 percent said they have never even checked their credit score. It's tough to move into a new home when you keep tripping over the simplest first step.
Some of the other financial obstacles are less avoidable for a generation that spent much of the recession largely unemployed or underemployed. The survey finding that 4.8 percent of millennials have less than $5,000 in savings, short of the three to six months of living expenses that financial institutions advise. Roughly 9.5 percent of millennials cited said they do not have or maintain a savings account, which makes sense for a group of people who hate banks but makes it tough to own a home when such accounts fall among the qualifications. With the average down payment on a home clocking in at $30,000, LendingTree may as well have asked millennials if they feel ready to run a small country or to command a herd of laser-armed cyborg antelopes. Both questions would be grounded in just as much reality for millennials as one that asks them to spend 30 grand they don't have.
Millennials shouldn't feel too badly about their lack of homeownership, as they're hardly alone. U.S. residents of median income can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas, according to a study by personal finance site Interest.com. That's an improvement from last year, when median-income households couldn't afford mid-range homes in 17 out of 25 metro areas.
Though 17 million Americans said they planned on buying a home this year, the median existing home price in the U.S. leapt past $220,000 for the first time since the housing crisis began. Overall, median home prices rose 6 percent over the past year, while incomes rose by about 2 percent. The only real break for middle-class homebuyers came from mortgage rates, which Freddie Mac notes were down from 4.5 percent for a 30-year, fixed-rate mortgage in January to just 4 percent this month.
The median household income in the U.S. hit roughly $52,000 last year, according to the Census Bureau. That's still well below the $56,400 those households were making in pre-recession 2007 and similarly distant from the all-time high of $57,000 last seen in 1999.
Meanwhile, roughly 51 percent of U.S. households make less than $50,000. Only about 18 percent of households make between $50,000 and $75,000, which could explain why a Bankrate.com report found that two-thirds of Americans are limiting what they spend each month. Of those, a full 32 percent say stagnant income is curbing their spending, while 29 percent simply want to save more. Don't blame the overall economy, either: Only 16 percent say worries about the economy are keeping them from spending more freely. Of those holding back, millennials are the most likely to cite "need to save more" as their primary reason.
Millennials aren't going to run off and buy a home just because somebody's antiquated notion of the American Dream says they should. This is a generation that doesn't really feel the need to buy cars, never mind houses, and has driven the share of new cars being bought by Americans between 18 and 34 down 30 percent in the past five years, according to auto pricing site Edmunds.com. A Pew Research Center study notes that people under 35 bought 12 percent fewer cars than they did in 2010. That's not a situation that's reversing itself, as the Department of Transportation notes that just 28 percent of 16-year-olds had driver's licenses in 2010, with just 45 percent of 17-year-olds claiming the same. That's plummeted from 50 percent and 66 percent respectively in 1978.
After watching their parents and neighbors load up on mortgage debt and scramble for higher ground as their equity dried up and left them under water, millennials are just fine with paying a landlord until their finances improve a bit. If they decide to buy a house after that, don't expect them to just throw piles of cash at the first McMansions shoved under their noses. Wisely, they're a lot more frugal than the buyers who came before.