Most millennials have saved
virtually nothing for a down payment on a home, according to a new study,
suggesting many will face steep obstacles to homeownership in the years ahead.
Nearly 70% of young people ages
18 to 34 years old said they have saved less than $1,000 for a down payment,
according to a survey by Apartment List, a rental listing company, expected to
be released Friday. About 40% said they aren’t saving anything on a monthly
basis.
Even senior members of the group
are falling short. Nearly 40% of older millennials, those age 25 to 34, who by
historical measures should already own or be a few years away from
homeownership, said they are saving nothing for a down payment each month.
The study helps illuminate a
tension at the heart of the housing market. The vast majority—some 80%—of
millennials said they eventually plan to buy a home. But 72% said the primary
obstacle is that they can’t afford it.
“It’s encouraging that
millennials do want to buy homes. It suggests that they are delaying forming
households but they’re not giving it up,” said Andrew Woo, director of data
science and growth at Apartment List. “The biggest reason [they aren’t buying]
is because of affordability.”
Catie Peterson, a 22-year-old
graphic designer in Fort Lauderdale, Fla., said she doesn’t expect to start
saving for a down payment for another five years or so. “I barely have enough
savings to cover my car if it were to break down,” she said.
Ms. Peterson said she pays $975 a
month in rent for a small one-bedroom apartment, which is about one third of
her paycheck, leaving little room to save. “Once I get settled in my career and
settled in my family, I think buying a house would be reasonable,” she said.
The reasons young people are
falling behind include student loan debt, rising rents and the slow starts many
got to their careers during the recession. Living in vibrant urban centers with
ready access to restaurants, bars and entertainment might also make saving seem
less urgent.
Many are children of the affluent
baby boomer generation and some expect their parents to give them a boost when
the time comes. In all, about one-quarter of millennials ages 25 to 34 expect
to receive help from friends or family, according to the survey. Still,
three-quarters said they expect to receive less than $10,000, which might not
be enough to close the gap.
There is evidence to suggest that
at least some young people could be saving more. On average, millennials who
make more money save a smaller share of their incomes. Those making less than
$24,000 save about 10% of their incomes, for example, while those making more
than $72,000 save just 3.5%, according to the survey.
To be sure, by some measures more
millennials are finding a way to buy homes than a few years ago. First-time
buyers have accounted for 42% of buyers this year, up from 38% in 2015 and 31%
at the lowest point during the recent housing cycle in 2011, according to
Fannie Mae. The mortgage giant defines first-time buyers as anyone who hasn’t
owned a home in the past three years, a group that could include older people
as well.
Yet some millennials face
daunting odds. Less than 30% of 25- to 34-year-olds can save enough for a 10%
down payment in the next three years, while just 15% could save that much
within a year, according to the Apartment List survey.
Some programs allow first-time
buyers to purchase homes with even smaller down payments, though those loans
typically come with costly mortgage insurance.
Gina Fontana, a 33-year-old data
analyst, said she has saved a bit for a down payment but doubts she will use it
anytime soon because home prices are so far out of reach.
Ms. Fontana said she saved enough
for a 10% down payment on a $200,000 house when she was living in Philadelphia,
but couldn’t buy anything in the neighborhoods she liked.
Now she has moved to Berkeley,
Calif., and said the area’s home prices—where starter homes can go for close to
$1 million—make the odds of buying a home essentially zero.
“I don’t see that ever
happening,” she said. “I just prefer to travel.”
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