Waiting Longer to Buy a House Could Hurt Millennials in Retirement
October 29, 2018
Homeownership in America is not as common as it once was — especially for today's young people.
That's the main takeaway from a new investigation into generational housing trends by the Stanford Center on Longevity.
Around 63 percent of Americans owned a house in 2016 — the lowest rate in half a century. Nearly 70 percent had owned a house by the end of 2005, the peak in subprime lending.
The researchers found homeownership declining most steeply among people under the age of 30 when compared with other generations. "They're not able to hit the mark at the same age as their parents," said Tamara Sims, a research scientist at Stanford.
Why the delay? People often want to put down roots once they have a family. Indeed, the likelihood of owning a home by the age of 30 swells by nearly 30 percentage points for those already married and with children.
But younger people today are not in a rush to wed and reproduce.
In 1960, the average age women and men first married was in their early 20s. Today, the median age for a first marriage is closer to 30. Meanwhile, the share of married households with children, aged 18 to 34, dropped to 25 percent in 2015, from 37 percent in 1990, according to the Urban Institute, a progressive think tank in Washington, D.C.
The growth in student debt is another factor explaining the decline in homeownership among the young. Average debt at graduation is currently around $30,000, up from an inflation-adjusted $16,000 in the early 1990s.
Those who are still repaying their student loans at 30 are 32 percentage points less likely to own a house than those who never borrowed for their education, the researchers at Stanford calculated. As a result of purchasing property later in life, Sims said, millennials may enter old age with less financial security.
"Homeownership is one of the touchstones of being prepared for retirement," she said. "Buying a home at age 50 or 60 isn't going to do you much good in funding a 30-year retirement."
Rising prices costing homebuyers more than $1,200 a year
The recent jump in mortgage interest rates, along with the continued rise in home prices, has increased monthly costs for homebuyers by 15 percent and reduced their purchasing power. That is an average, according to Zillow, but all real estate is local, and in some markets, the rise is even steeper.
The average rate on the popular 30-year fixed mortgage is almost a full percentage point higher today than it was a year ago. It recently crossed the 5 percent line. Home prices are up 6.5 percent from a year ago, according to Zillow, so looking nationally, monthly mortgage payments for the typical home are 15.4 percent higher than they were in August 2017. Two-thirds of that jump is from interest rates, one-third from higher prices.
For the median-priced U.S. home, $216,700 in August per Zillow, a 1 percentage point increase to the current rate translates to about $1,200 more per year in mortgage payments when home prices remain the same. Climbing home values add to that increase.
"Homebuyers and sellers have become accustomed to low rates, and there will be a bit of an adjustment period as the market adapts," said Aaron Terrazas, Zillow's senior economist. "Looking ahead, the impact of higher rates may slow the pace of home value growth, particularly in the nation's priciest markets. Buyers will face higher financing costs, but also could benefit from somewhat less frenetic competition."
For homebuyers who don't have a lot of wiggle room in their wallets, the rise in monthly payments will reduce the number of homes affordable to them in their local markets. A buyer with a $2,500 monthly housing budget lost nearly $30,000 in purchasing power this year, according to Redfin, which also calculated the share of homes that would no longer be affordable.