Millennials, what are you waiting for? You should be buying a home right now. That’s the conclusion of a pair of recent studies that looked at homeownership.
Zillow, the online real estate Web site, considered how rising interest rates and home price appreciation would affect a buyers’ ability to purchase a home. Even though interest rates have been hovering at yearly lows, most observers expect them to begin rising soon. Home values have been steadily climbing for some time.
Assuming that home values stayed constant and that a home buyer would put 20 percent down and take out a 30-year fixed-rate mortgage, Zillow found that a D.C. area buyer who waits one year to purchase a home would probably pay an additional $186 per month.
According to Erin Lantz, vice president of mortgages at Zillow, the rule of thumb is that a one percentage point increase in mortgage rates decreases affordability by 10 percent.
Meanwhile, the Harvard Joint Center for Housing Studies wondered why first-time home buyers were staying out of the housing market, especially now that home affordability was near an all-time high.
The center focused on 25- to 34-year-olds, the group most likely to become first-time home buyers, to find out how many earned enough to afford a median-priced home in the top metro areas. It discovered that in 42 of the 85 metro areas, more than half of the renters can afford the monthly costs of homeownership.
The median home is considered affordable if mortgage payments — with a 5 percent down payment, typical of first-time buyers — property taxes, insurance and non-housing debt payments make up no more than 43 percent of a household’s income.
In the Washington metro area, JCHS found that 44 percent of renters ages 25 to 34 can afford to own a median-priced home ($378,050) with an estimated monthly ownership cost of $2,129. While overall homeownership in this area is at 63.1 percent, just 34 percent of the homeowners are ages 25 to 34.
JCHS cited several factors for why 20-somethings and 30-somethings are continuing to rent rather than own. The unemployment rate for this group peaked at 10 percent in 2010 and stayed above 7 percent through 2013. Unemployment and income stagflation mean that many millennials can’t afford even a 5 percent down payment, and nearly 40 percent of this group have student loan debt. A larger share of their monthly income goes to loan payments compared with older groups.
Read more about the study here.
(A reprint from the Washington Post, by Kathy Orton.)
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