I have been doing a lot of reading lately about the increase in the percentage of millennials (the largest generation of potential purchasers in the history of the U.S.) that are living at home in the U.S. According to Business Insider magazine, and I quote:
Nearly one in three millennials lives in their parents’ home.
The U.S. Census Bureau recently released a study on how young adulthood has changed between the 1970s and today. One of the main topics covered in the study was living situations.
In 1975, a 57 percent majority of young adults aged 18-34 lived with a spouse, while just 26 percent of adults lived in their parents’ home. In 2016, only 27 percent of young adults lived with a spouse, while the proportion of 18-34 year olds living with their parents went up to 31 percent, becoming the most common living situation.
There are a number of reasons why this current trend is increasing and causing many millennials not to be able to purchase their first home, and I quote Zack Friedman, senior contributor to Fortune magazine:
1. Student loan debt (44 million individuals strapped with $1.5 trillion loans).
2. Rising housing costs and lack of affordability are outpacing stagnant and lackluster wages.
3. Some 8 percent (one fifth of millennials) of borrowers for a home are denied due to lower than normal credit scores as well as too high debt/income ratios and also due to late or non-payments on student loans and credit cards as per the National Association of Realtors.
4. Some 83 percent of people 22 to 35 years of age with student debt (average amount owed $30,000 as per http://www.studentloanhero.com and one fifth owe $100,000+ have not been able to save and buy their first home as per the National Association of Realtors (http://www.nar.com). Most importantly, these loans, which decrease F.I.C.O. (Fair Isaac Company) scores also making saving, next to impossible.
5. For every $1,000 increase in student debt, lowered the chances of homeownership one to two percentage points, during the first five years after their college education (as per three analysts, Alvaro Mezza, Daniel Ringo and Kamila Sommer, from the Federal Reserve division of research and statistics quoted from The Mortgage News Daily Newswire (http://www.mortgagenewsdaily.com) 2/5/19 as per columnist, Jann Swanson
Although our economy is very strong (but not for everyone), 85 percent of student loan borrowers say, they are having great difficulty in saving for a home, and is forcing many to live or go back living with their mom or parents and delay their purchase, so they can save up more money for a down payment, as per the National Association of Realtors. Homeownership peaked in 2005 at 69 percent (45 percent
of millennials 24-32 owned their homes) and then decreased to 36 percent, mainly due to the heavy debt burden of their student loans). This was the greatest drop among young adults to date.
The majority of banks wanted debt/income ratios (student plus housing loans) to be at or below 36 percent, unless you were a doctor or professional with a higher income potential or living in higher cost areas, where they would push the debt/income higher, as needed. More millennials are leaving urban areas where salaries tend to be lower to the cities or areas with higher potential earnings.
According to Annie Nova on the personal finance team at CNBC in May of 2018, in the fifty larges metro areas, of 24-36 year olds, 23 percent lived with mom up from 13.5 percent in 2005. According to the Brookings Institute forty percent of student loans will be in default by 2023, if something drastic is not done today!
Congress and the Senate need to devise some type of plan and partial solution as soon as possible, leading to lessoning the burden that these student loans have on those trying to save and purchase their first home. If not our housing market will slow down much faster without those new buyers and potentially lead to a much slower economy and will affect other related industries to slow too.
Parents with any type of money to assist their children should do so since we aren’t taking anything with us! (you can give $14,000 per child per year as a gift, tax-free, refer to your accountant for more advice)
Here are some ideas to help millennials begin down the path of purchasing their first home:
According to Make Lemonade, (makelemonade.com how to build your credit scores) the best way to build credit is to understand that your credit score – particularly your FICO (created by the Fair Isaac Company) score – is based on the following components:
1. Payment history = 35 percent
2. Credit utilization = 30 percent
3. Account age = 15 percent
4. Inquiries = 10 percent
5. Credit Mix = 10 percent
A higher credit score can score your better rates on credit cards, private student loans, student loan refinancing, mortgages, auto loans and much more.
Lastly, years ago and even today, many went out and took on a second and even third job (as many immigrants do today!).
So if you want that “picket fence”, homeowner association condo, or co-op then go secure another job or two to earn additional money to get out of your parents home. Just do it.
Philip A. Raices is the owner/broker of Turn Key Real Estate at 3 Grace Ave Suite 180 Great Neck. He has earned designations as a Graduate of the Realtor Institute and a Certified International Property Specialist. Receive regular “free” updates of sold homes in your area and a “free” Comparative Market Analysis” of what your home would sell for in today’s market or search on: WWW.Li-RealEstate.Com He can be reached by email, at:Phil@TurnKeyRealEstate.Com, or by cell: (516) 647-4289.