Apartment List recently conducted a survey of more than 30,000 renters across the United States, asking questions about their plans for homeownership, affordability, and savings for a down payment.
Our research indicates that the vast majority of millennial renters (79 percent) want to purchase a home, but that affordability is the biggest obstacle that they face. You can see our national report (with data for 93 metros and 130 U.S. cities) at this link.
Today, we dive into the results for the Los Angeles metro specifically.
Are millennials planning to buy a home soon?
In the Los Angeles metro, 76 percent of our survey respondents do desire to purchase a home. Of these, the majority (40 percent) say that they plan to buy five or more years from now. The next largest group (29 percent) plan to buy within the next 3 to 5 years.
This means that, just as on the national level, the millennial homeownership rate for Los Angeles will stay down for a while longer. In contrast, in other metros like San Francisco, 37 percent of millennials plan to buy 5+ years from now and another 37 percent plan to buy within 3-5 years.
Affordability poses the biggest obstacle to homeownership
The biggest obstacle to homeownership for millennials in the Los Angeles metro is affordability. 83 percent of those who are putting off buying a home say it is because they cannot afford to buy right now.
Our national survey found that millennials in coastal cities, and especially on the west coast, struggle with affordability, so this comes as no surprise. In contrast, only 32 percent said that they were not ready to settle down, and 34 percent were waiting to be married.
For those who expect to always rent, not being able to afford a home was their no. 1 reason to do so.
Millennials in LA underestimate the cost of a down payment
To compare millennial expectations for the cost of a down payment with reality, we asked them how much they expected to need for their own down payment. The median price of a 20 percent down payment for a starter home in the Los Angeles metro is $65,800, and the average millennial expectation of how much a down payment will cost is $42,690 – a difference of 54 percent.
This is a large percentage of underestimation but is not unique to LA; millennials in other California metros such as San Diego and Sacramento tend to underestimate the necessary amounts for their down payments as well.
How long does it take to save for a down payment?
In order to determine how long millennial renters will need to save for a down payment, we also asked them the following questions:
- How much have you saved for a down payment so far?
- How much help (e.g., from family) will you be receiving for a down payment?
- How much of your monthly income do you put towards saving for a down payment?
This allowed us to estimate how many years it will take them to save enough for a 20 percent downpayment on a home.
At the current savings rate in Los Angeles, it will take millennial homebuyers about 20 years to save up enough for a downpayment. Although two decades is indeed a long time to save, millennials in the LA metro won’t have to save for as long as millennials in Sacramento (26.9 years) or San Francisco (27.8 years). Overall, California metros had some of the highest savings periods in the country.
Although many claim that, “West is best,” it is undoubtedly expensive to live on this coast. And many millennials may be in for a rather harsh awakening when they go to purchase a home and realize the down payment is far higher than they initially expected.
Millennials in the LA metro will be faced with the decision to either rent for the rest of their lives, start dedicating more savings, receive more financial assistance from family, or simply buy their home somewhere else when the time comes.
The LA metro is a place for big dreams and high hopes, but the question of whether or not these big dreams and high hopes will be sustainable long-term when it comes to homeownership, remains to be answered.
Yuki Graviet Knapp is a Content Marketing Associate with the Growth Team at Apartment List and is a resident of the Bay Area.