The rate of homeowners in the U.S. has reached a historic low. Many question if the largest living generation, millennials, will purchase homes at similar rates to previous generations. Apartment List ’s annual renter survey included input from 24,000 millennials, which they analyzed to better understand homeownership plans.
According to Apartment List, 80 percent of renters in the U.S. plan to eventually purchase a home; however affording a home is a significant obstacle. Apartment List said, based on current saving rates, millennials, born between 1982 and 2004, vastly underestimate the amount of savings necessary for a down payment. Many millennials may need up to a decade to save up the needed amount, per Apartment List’s analysis.
In many parts of the country, recent improvements in the labor market have not meant that entry-level homes have been more affordable to millennials. According to Apartment List, this leaves millennials with three choices: extend their budgets and purchase at higher debt-to-income ratios, heightening the risk of mortgage default; migrate to more affordable areas; or delay buying a home.
Using Dallas as an example of this trend, apartment list found that of 82 percent of millennials that plan to buy, 72 percent are waiting because they cannot afford to buy. Forty-five percent of millennials are not ready to settle down and 37 percent are waiting for marriage to purchase a home. The expected amount of years to save for a down payment was 5.1 years, however based on their current savings rate, Dallas millennials will need 9.3 years on average to save enough for a 20 percent down payment.
Though millennials in Dallas estimate the down payment to be $20,380, based on the median apartment condo price, a 20 percent down payment would be $33,660, 39 percent more than the estimated amount.
Apartment List said homeownership has traditionally been a key component of the American Dream and the primary driver of wealth creation for families. Despite recent leveling off following the aftermath of the 2008 housing market collapse, rates have not shown signs of recovering to its pre-recession peak. Lack of savings combined with the shortage of affordable starter homes could leave a large amount of millennials renting for years.