Generation Y gets older, more 20- and 30-somethings are settling down and purchasing their starter homes. According to the Zillow Housing Confidence Index, 12.9 percent of millennials say they would like to buy a home this year, compared to only 12.1 percent of the population overall. Therefore, millennials are the most hopeful homebuyers in the country.
Although many want to, not every young person can afford to buy. Saving while renting has been tough on everyone – regardless of age – these past years with rents costing over 30 percent of the median U.S. income. Given the high rent burden plaguing most major metros, many millennials are even more motivated to enter into homeownership. The question remains: are homes affordable enough for lower-income earners like millennials to buy?
It might come as a surprise that the average millennial budget can afford more than 70 percent of homes on the market in the U.S. However, affordability varies greatly depending on location. For example, less than 60 percent of homes for sale in Boston are affordable for the average 23- to 34-year-old's income, assuming a 5 percent down payment and 30 percent of monthly income spent on a mortgage. Only 25 percent of homes on the market in Los Angeles and Honolulu are deemed affordable for millennials, further delaying young people’s West Coast and Hawaiian homeownership dreams. With more young companies infiltrating coastal cities, and more millennials moving to chase their career aspirations, young professionals struggle to find housing inventory that fits their income and price range.
Since mortgage rates are historically low, it might seem odd that so many homes are out of the price range for the younger generation. The problem lies within income level trends versus home value trends. Since 2000, income levels for the bottom third of U.S. workers have risen 15 percent, while home values have increased by 41 percent nationwide. In Los Angeles, an individual within the lowest-third income level would have to spend 85 percent of his or her monthly pay on an “inexpensive” property.
Cities Where Millennials Should Buy
On the other hand, there are a handful of mid-size cities that have the inventory within a millennial’s budget range. Check out the Midwest where 90 percent of homes for sale in Akron, Ohio, are affordable for millennials, again assuming 5 percent down and 30 percent of income spent on a monthly mortgage. In Minneapolis, 75 percent of listed homes are considered within price range. Generation Y buyers can also search for homes in St. Louis, where 85 percent of homes for sale are within their budgets.
If you are a young aspiring homeowner, struggling to find inventory based on your income level, it might be time to consider a move. Not only is for-sale housing unaffordable in large markets, renting is considered astronomical. With a lower income, housing costs are taking precedence over necessities like dental care needs.
Regardless of where you plan to live, you can determine how much home you can personally afford by visiting Zillow and begin your path toward homeownership. It might not be the right time to buy in your desired locale based on your income, but at least you will have an idea of how much to save before getting started.