2015 marks an all-time low percentage of first-time home buyers. According to cnbc.com first-time home buyers made up only 32% of sales, the lowest in over three decades. So what’s causing such a substantial decrease in buyers? In what many would argue, a favorable market, why is the homeownership rate in the US the lowest it’s been in 50 years at 63.4%?
The general consensus as to why there is a lack in first-time home buyers is millennial debt, much of this debt acquired by the younger generation comes from student loans. While there’s an increase in the desire for a higher education, it is also more commonly a requirement in the workplace. Now, in the application process, most companies don’t just “prefer” a bachelor’s degree but require one. In turn, the millennial age is continuing on to higher levels of education but also higher levels of debt in order to find a stable career. Student debt is preventing people from being able to save for a down payment. Instead of setting aside a couple hundred dollars a month, in hopes of owning a home some day, they’re paying hundreds a month on paying back their loans.
Furthermore, what’s holding back the millennial age from purchasing a home is the significant increase in rent. The Wall Street reported that most people are paying rents that are 40% of their gross monthly income, leaving little to be saved. An ideal percentage of a monthly income dedicated to housing would be 25% to a maximum of 30%. This increase in rents nationwide is a classic cause and effect case. While employment is on the rise, and younger generations are finding themselves careers, they’re also looking to rent a home. Seeing as the majority of the younger generation does not have the means for a down payment, most all of them look for a place to rent, causing a very high demand. With such a high demand in the market, landlords are increasing their rents.
While much of the millennial sees ownership in a home as a good investment, it isn’t a foreseeable goal for them in the near future. Due to a scarce inventory, home prices are only increasing, which is good for owner equity but not so good for first-time buyers. Wages too seem to be on a steady increase over the year, yet the price of a home is increasing twice as fast. In a time where mortgage approvals are a bit more flexible, interest rate are low, and jobs are plenty you’d think everyone would be buying home; unfortunately, that isn’t the case for the millennials.