While buying a home that fits the definition of “unaffordable” to millennials (age 25 to 34) according to the federal government—that is to say, a home with monthly mortgage payments that exceed 31 percent of the household’s monthly income—is generally a bad idea, research released by Trulia  on Wednesday indicates that sentiment may be reversing its field.
In many housing markets that have seen strong wage and income growth, the share of a household’s monthly income put toward a mortgage payment is shrinking, hence the once “unaffordable” house could become affordable within a matter of just months in some cases, according to Trulia. Interestingly, the majority of the markets where unaffordable houses become affordable over the life of a 30-year mortgage (or are already affordable) are in the northeast or on the east coast (Providence, Rhode Island; Newark, New Jersey; New Haven, Connecticut), while the majority of those markets that are defined as unaffordable and likely to stay that way are located on the west coast (primarily in California).
Initial mortgage payments are already affordable to millennials in 73 out of the 100 largest housing markets in the country, according to Trulia—in other words, the initial mortgage payments make up 20 percent or less out of that household’s monthly income. In a market where house prices are low and income growth is strong, such as Columbia, South Carolina (another market in the eastern U.S.), the payments begin the life of the mortgage as 17 percent of the household’s monthly income; by the end of the life of the loan, the payments drop to 6.6 percent. The households in the top 10 affordable markets all will end up paying less than 7 percent of their monthly income toward their mortgage payment by the end of the loan. The top five affordable markets are all in the eastern part of the country: Detroit, Birmingham, Pittsburgh, Akron, and Columbia.
In 17 out of the largest housing markets, however, a median price home is defined as unaffordable to millennials; but the good news is, though the monthly payments may be initially unaffordable, it becomes affordable in less than two years into the life of the mortgage in markets like Washington, D.C.; Silver Spring, Maryland; Madison, Wisconsin; and Tacoma, Washington. Even in some pricier east coast markets like Boston, Cambridge, and Long Island, due to strong predicted wage growth, the median price home will become affordable to a millennial six years after purchase.
New Haven, Connecticut, was the market with the largest expected decline in percentage of monthly income put toward a mortgage payment over the life of a mortgage, due to projected strong income growth in that area. Millennials purchasing a median priced home in New Haven now can expect to pay 37 percent of their monthly income toward a mortgage payment; by the end of the loan, that share will drop to 11.2 percent, a decline of more than 25 percentage points, according to Trulia.
“Buying a home is one of the biggest financial decisions a household can make,” Trulia said in the report. “In general, buying is a better financial decision than renting, but at the same time, median housing prices in several markets are unaffordable and down payments can be hard to come by. So the decision can be tough. If households plan on staying in their home for a long period of time, buying an unaffordable home probably isn’t a terrible idea. If a household moves often, it’s almost certainly a better idea to rent.”
To read the complete study, click here .