Homeownership is generally considered part of the American dream – but that portion of the dream may be fading for millennials, according to a new survey reported by Northshore Fireplace. Too many millennials are having trouble meeting the financial requirements of homeownership, and dissatisfaction is beginning to show.
While 80% of millennials consider homeownership a realistic goal, three-quarters of millennials say they can't afford to buy a home right now. Half of the survey respondents have $2,000 or less saved for a down payment, and on average think their first home will cost just over $218,000 – which is probably why half of the millennials want down payments of 10% or less instead of the standard 20%.
The survey found that 40% of millennials prefer to rent a home, even if they have money for a down payment. That closely aligns with the 41% who fear the burden of paying a regular mortgage, and with the 65% who say that homeownership is a choice rather than a necessity. (Given that roughly 65% of respondents also say that they can't afford a down payment, maybe that drives the definition of necessity.)
A 2018 study from the Urban Institute found three aggravating factors that combine to push millennials out of the market – tight credit, a poor supply of affordable housing, and high rent prices. The Northshore Fireplace survey suggests that these factors are still in play.
Limited supply drives prices up and makes housing even less affordable, especially in hotter markets. Millennials may be forced to relocate or downsize their goals to find a suitable home – a theory consistent with survey results.
Three in ten homeowning millennials in the survey relocated to find their home. Overall, 65% of respondents expect to relocate to find an affordable home, with 41% assuming relocation to another state. However, the downsizing of goals is less likely. Almost half (45%) of millennials think their first home will be their dream home – a similar number to those who expect to buy a home in the next four years (46%).
Perhaps some millennials are thinking if they can't afford their dream home now, they'd rather rent and save until they can – but how realistic is that goal? High rent makes it harder to save for a down payment, and tight credit makes it less likely that millennials will find a suitable interest rate.
Some millennials may be concluding that it's not worth the potential financial burden, but they may be forgetting that homeownership can also bring financial benefits.
A recent LendingTree survey found that millennial homeowners have higher median credit scores than renters (671 to 582) – in part because homeowners are likely to have higher credit scores, to begin with, but also because their scores are boosted by regular on-time payments and the subsequent access to even more credit. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
In addition, while you're gaining a large financial burden by buying a home, you're also gaining equity. Rent money is simply a monthly expense. You gain no long-term value.
Should you rent or buy? Only you can answer that question based on your own circumstances – but don't just assume that homeownership is out of your grasp because you're a millennial, or that it doesn't make economic sense to buy a home. Balance your personal homeownership pros and cons, both long and short term. If you decide that homeownership is a worthy goal, lay out a budget and a timeline that will get you there. All you need then is the willpower to follow through.
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