Why We Are Waiting Longer to Buy Our First Homes

New Study Suggests Some Causes

Why We Are Waiting Longer to Buy Our First Homes
September 9, 2015

The housing market has been slow to recover from the Great Recession, and one of the main reasons why is the lack of first-time homebuyers. Millennials are more likely to rent for a longer time before purchasing a home or conclude that home ownership just is not worth the expense and debt. A new analysis by Zillow confirms this trend.

During the early 1970s, the typical first-time homeowner rented for 2.6 years before buying their first home. Zillow found that since that time, the average rental period has more than doubled to an average of six years renting before purchase. The median age of the first time homebuyer has also increased to 33. As the balance tips toward renting, U.S. home ownership has slumped to a 48-year low at 63.4%.

The resulting delay in first-time home buying has a ripple effect on the housing market, since current homeowners cannot upgrade if they do not have anyone to buy their current home. At the same time, the inventory of starter homes is low in some markets, as the same economic challenges that keep millennials from buying keep some homeowners in their starter home until they can afford an upgrade.

Why are millennials taking longer to buy their first home? Zillow suggests some reasons, and we have added a few others.

  • Wages/Jobs – The economy has been recovering, but it is doing so at a slow pace. Millennials are having a difficult time acquiring the down payment money necessary to purchase a home. Increases in rental costs are increasing the savings challenge, even as inflation remains relatively low. Rental costs are rising at approximately twice the rate of wage growth.
  • Choice of Rental – In some cases, millennials are renting places that are expensive enough to make saving difficult. Harvard's Joint Center of Housing Studies found that 46% of millennial renters (ages 25-34) spend over 30% of their income on rent. That may be the only housing available, or they may have decided to sacrifice earlier home ownership for a more comfortable rental experience.

  • Home Prices/Inventory – Zillow found that first-time homebuyers are paying a median price of $140,238 for their first home, which is 2.6 times their median income. Prices have risen as the inventory of affordable homes has decreased. The price increases have outpaced the wage increases for most millennials, resulting in a longer time frame to build up a down payment.

  • Caution – Millennials saw the effect of the housing crisis on valuations and debt accumulation and are understandably cautious about diving into the housing market without a stable income and sufficient down payment funds. First-time homebuyers now average 4.5 years in their field and three years with the same job.

  • Loan Terms – Caution exists on the lender's side as well. For the most part, no-money down and piggyback loans that finance the down payment are a thing of the past. Banks have also tightened credit qualifications in response to the Dodd-Frank reforms. Restrictions are loosening somewhat, but it is still difficult for millennials to get a loan at a favorable interest rate.

In essence, most millennials still aspire to home ownership. However, the current economic and job situation is making it difficult for them to do so — and coming into young adulthood during the Great Recession and the housing crisis has made them wary of overextending themselves and acquiring too much debt. That level of caution is not necessarily a bad thing, if it leads to proper planning instead of giving up on home ownership dreams entirely.

Photo ©iStock.com/Geber86

  Conversation   |   31 Comments

Add a Comment

By submitting you agree to our Terms of Service
Steffanie | 09.09.15 @ 14:44
I know we waited longer than any of our peers to buy our house. It's a big step to take.
Kate | 09.09.15 @ 14:45
We are waiting because we want have a significant down payment. Even though we are first time home owners and hoping one is not necessary we still want to have that down payment.
Christina | 09.09.15 @ 14:53
It's a very big step for younger generations . With the economy and slow job openings it hard on everyone.
Nancy | 09.09.15 @ 14:53
I think some of the trend of waiting to buy is that this generation doesn't seem to want to start at the beginning. They want the best Now. And if the can't have what they want they'd rather wait, Most of my generation started with an old car, second hand furniture, and a fixed upper house. Not so today.
Jackie | 09.09.15 @ 14:54
Many potential first time homebuyers are still paying down student loans or don't have a large enough down payment to be able to qualify.
Daniel | 09.09.15 @ 14:55
Uncertain economy, job markets, and fluctuation real estate markets are many good reasons to wait on this first huge purchase
Elaine | 09.09.15 @ 15:04
Way too many things are just unstable so that makes people put off buying homes.
Sarah | 09.09.15 @ 15:05
If we had it to do again, we'd not have bought. Renting is so much easier in the grand scheme of things.
Sara | 09.09.15 @ 15:06
We bought fairly early and really fast... Sadly we bought what would now be out of our price range after job changes. So always make sure you can afford it for the long haul.
Victor | 09.09.15 @ 15:07
We always wait until we are ready and maybe we won't ever be as as ready as we want.
Meredith L | 09.09.15 @ 15:11
After I lost my first home to foreclosure, I didn't think I would ever consider buying again. I didn't want the responsibility or the heartache again. But we found a house with a lot of potential and came in knowing the pitfalls of homeownership. I can tell you from experience, it's so much different when I can say "it's mine."
Kyle | 09.09.15 @ 15:13
This has a lot of goof information. For me personally it's saving the money needed for a down payment.
Owen | 09.09.15 @ 15:19
We are waiting due to relocations with work.
Britt | 09.09.15 @ 15:20
I'm a full time student currently, so I am years away for even thinking about my first house. But getting the down payment will be my biggest issue.
Rychana | 09.09.15 @ 15:25
I haven't bought my first home yet and these are some of the reasons why. Good article.
Bobbie | 09.09.15 @ 15:26
With people not staying in long term jobs like back in the day. Gone are the days of staying with one company for 30-40 years and retiring, With that shift, job security is a big concern. I can see that being a major factor in delaying buying a house. The loan process as well can be daunting, and having the ability to save up a down payment.
Carla | 09.09.15 @ 15:31
Rent has gone up so high that it is almost impossible to save for a down payment on a house. On top of that, in our area jobs are scarce unless you drive over an hour away.
Kamie | 09.09.15 @ 15:32
With how up and down this economy is, I totally understand why anyone would want to wait for the right time to buy the right house in the right neighborhood.
Angie | 09.09.15 @ 15:36
We bought our home almost 25 years ago - it was considered a starter home, then, but we've raised 7 children in it,(miraculously) and some have left the nest. At this point, why would we go bigger anyway?
Ron | 09.09.15 @ 15:44
The subprime collapse ruined home equity for a lot. My home dropped almost $40k in value and we just now are trending upward to where we were. Call it gun shy.
Beverly | 09.09.15 @ 16:00
I think it is smart to wait to buy your first home, you want to make sure you are in a position to actually afford to live in it. Plus we have become a nation of people who want the best from the very beginning, and a room for everyone. It used to be a family of four or five lived in a 2 bedroom with a one car garage........if they were lucky.
Chelsey | 09.09.15 @ 16:03
My husband and I are desperately wanting to buy our first house. We are fixing some credit issues that are preventing us from getting a good loan. The rental market in our area is outrageous. rents for apartments are up 300-400 dollars since this time last year. Forget renting a house its $1400 for a 2 bedroom! We desperately want a house, but are trying to get our ducks in a row so we can get the house we want instead of settling
Steven | 09.09.15 @ 16:16
Wish we would have waited a while before actually buying a home.
Jonathan | 09.09.15 @ 16:25
I'm 31 and what I've seen is the job climate has alot to do with it, it's tough to find a job right out of college able to afford a house on, either most of the people I know have to wait a few years to rise in the career field or carry on in their education for a Master or a PHD .
Jonathan | 09.09.15 @ 16:27
What I've noticed is the job climate has more to do with it. I'm 31 and most of my peers weren't able to afford a house right out of college. They either had to wait a few years and rise in their field or continue their education in a master's or PhD.
Erin | 09.09.15 @ 16:35
It's such a big decision and responsibility to take on. Taking your time is a really good idea.
trish | 09.09.15 @ 17:04
I think it also comes to trusting the banks for loaning again. We were part of that group that bought a house that we were pre-approved for, and worked out with a "financial adviser" who showed us how we could afford a house for that much. We were in quite a hardship until Making Homes Affordable came around. We would have lost everything if not for that program.
Zanna | 09.09.15 @ 17:19
There are so many unexpected costs to owning your own home, I wish we had waited and saved more first!
Kathryn | 09.09.15 @ 17:25
Me and my fiancé have just bought our first home! I completely agree, why wait? Just always make sure it's in your range of budget like we did. :) Talk to your bank about payments as well!
Heather | 09.09.15 @ 17:27
We waited several years after we were married to buy our home. Just needed to make sure the finances were there.
gracie | 09.09.15 @ 17:36
It's one of the biggest purchases most people will make in their lifetime. I think with unstable job market and economy people are waiting until they feel more secure investing a large chunk of their savings into something.
$commenter.renderDisplayableName() | 11.26.20 @ 07:30