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Home Ownership On Hold
Friday, August 21, 2015 6:40 AM

Short of cash, burdened by student debt and unsettled in their careers, young adults are biding time in apartments for longer periods and buying their first homes later in life.

The typical first-timer now rents for six years before buying, up from 2.6 years in the early 1970s, according to a new analysis by the real estate data firm Zillow. The median first-time buyer is age 33, in the upper range of the millennial generation, which roughly spans ages 18 to 34. A generation ago, the median first-timer was about three years younger.

The delay reflects a trend: Renters are struggling to save for down payments as wages have largely stagnated. Increasingly, too, renters are facing delays in some key landmarks of adulthood, from marriage and children to a stable career, according to industry and government reports.

These shifts help explain why homeownership, long a source of middle class identity and economic opportunity, has started to decline. The share of the U.S. population who own homes has slid to 63.4 percent, a 48-year low, according to the Census Bureau.

And when young adults do sign the deed, their purchase price is now substantially more, relative to their income, than it was decades ago. First-time buyers are paying a median price of $140,238, nearly 2.6 times their income. In the early 1970s, the starter home was just 1.7 times income.

Some first-timers lean on their parents. Among homebuyers last year under age 34, 14 percent received down payment help from family or friends, according to a Federal Reserve survey.

Most first-timers still depend on personal savings for at least some of their down payments. But rising rental prices have complicated the task of socking away money for a down payment. Fueled by a surge of renters across all age ranges, rental prices nationally have grown at roughly twice the pace of average hourly wage growth, which was a paltry 2.1 percent over the past year.

A result is that those prices are consuming more income. A striking 46 percent of renters ages 25 to 34 (the core of the millennial population) spend more than 30 percent of their incomes on rent, up from 40 percent a decade earlier, according to a report by Harvard University's Joint Center of Housing Studies. (The housing industry generally regards a figure above 30 percent as financially burdensome.)

Job security has become a more central consideration for first-time buyers. The Money Source, a mortgage lender and servicer, examined applications from 5,404 millennial homebuyers. It found that the buyers had averaged nearly 4.5 years in their field of work and had held their current job for slightly more than three years. Those figures point to how critical career stability has become for a generation that entered the workforce during the Great Recession and its slow-growth recovery.

Housing industry experts note that surveys still show a strong desire to buy among millennials, but that their timelines for purchasing depend on achieving more stability in their careers.

 

Source:  Associated Press, 18 August 2015