As millennials flock to major metros for professional and recreational opportunities, their chances of being able to buy a home appear to be more limited than they realize.
A 2016 study by Apartment List surveyed 30,000 renters and found that for 77 percent of millennials, affordability is the largest obstacle standing in the way of homeownership, compared to less than half who feel it’s mainly because they’re not ready for marriage or settling down.
This problem is particularly acute for those starting their career on the West Coast, in cities such as San Francisco, San Diego, Seattle, Los Angeles and Portland, Oregon, where more than 80 percent of millennials say they can’t afford to buy.
Lowballing down payments
In addition, those living in most expensive cities are prone to severely miscalculating the amount of money required for their area’s typical down payment — oftentimes by 50 percent or more.
“Using data on starter home prices and millennials’ average savings rates currently, we estimate that many renters will need a decade or more before they can afford a 20 percent down payment on a home,” the report noted.
For example, millennials in San Francisco reported that they’d probably need around $70,000 for their first down payment, when they’ll actually be expected to shell out more like $143,000. Seattle, Portland and Denver, which aren’t as notorious for being outrageously expensive, are still more out of reach than renters think, as shown by the data below.
Perhaps even more startling is that more than 40 percent of millennials say they’re not saving anything for a down payment.
“Even among older millennials, the picture is not much better: more than 70 percent are saving less than $200 each month, even in expensive cities like Boston or Los Angeles,” the report said. “Interestingly, 74 percent of millennials do not expect to receive any help for their down payment; only 6 percent expect to receive $10,000 or more in financial support.”
The grand scheme of things
In the second quarter of 2015, U.S. homeownership rate reached its lowest level in 50 years — 63.4 percent, with the rate among millennials continuing to decline each quarter, Apartment List noted. Still, 79 percent of millennials “plan on eventually purchasing a house or apartment.”
Considering the abundance of research and conjecture on this generation that aims to understand how their mindset, goals and priorities will impact the future, in essence, the implications here boil down to what will happen if and when millennials realize they can’t afford to buy a home where they currently reside.
Apartment List posits two likelihoods: millennials will relocate to more affordable cities like Atlanta, Detroit and Charlotte or continue to delay homeownership along with marriage and having children.