Millennials, persons born between 1980 and 2000, should be in the market for a home right now. At least that is the conclusion put forth by two recent studies analyzing home ownership.
Interest rates vs. affordability
The real estate site, Zillow, put together a study looking at the effects of interest rate increases on home affordability. By applying a 1% interest rate increase to the median home price in 35 metros around the country, and comparing that number to next year’s forecasted home values, Zillow calculated the difference in mortgage payments for a home bought in the current market vs. waiting to buy.
According to their calculations, waiting another year to purchase a home in the Austin area could cost you an additional $104/month. While interest rates currently hover around all time lows, many expect the Federal Reserve to raise interest rates sometime next year.
“As a rule of thumb”, says Erin Lantz, vice president of mortgages at Zillow, “a 1 percentage point increase in mortgage rates reduces affordability by 10 percent”.
Where have all the first-time homebuyers gone?
Meanwhile, the Harvard Joint Center for Housing Studies (JCHS) posed the question: why are first-time homebuyers staying out of the housing market even though home affordability is near an all-time high?
According to indexes that incorporate gross measures of median home prices, interest rates, and household incomes, affordability remains at unprecedented levels. However, compared to the 2001 American Housing Survey (1991-2001), the most recent survey (2009-2011) shows a 22% drop in first-time homebuyers – why is this?
In their study, the JCHS focused on the age group most likely to be first-time homebuyers (25-34), and determined how many earned enough income to afford the costs of owning in various metro areas. With mortgage payments – including a 5% downpayment (typical for first-time buyers) – property taxes and insurance, and non-housing debt payments making up no more than 43% of a household’s income, the JCHS found that in 42 of the 85 metros studied more than half of renters could afford the monthly costs of homeownership.
Unemployment, income stagnation, and student loan debt were all listed as reasons by the JCHS as to why many millennials are opting out of the housing market; however, as the economy improves, there should be more willingness and ability by these households to become first-time buyers.
Where is the best purchase market for aspiring millennial homebuyers?
According the to the National Association of Realtors: Austin, TX.
That’s right – low unemployment rate, rising housing stock, and affordability places our hometown at the top of the list of best home-buying markets for millennials in the United States. Even though home prices in Austin have shot up in the last few years, the city’s median home price of $252,520 is still much lower than most metros across the country.
I’m a millennial and I think I can afford to buy a home, does this mean I should?
Not necessarily. Just because you can afford a home, doesn’t mean it’s the best investment for you personally. There are several variables that factor into deciding whether or not purchasing a home serves in your best interests, such as how long you are planning to stay in the home, mortgage details, market trends, taxes and recurring costs associated with homeownership. Fortunately, there are some handy calculators available to the public to help you make this important financial decision.
The calculator says I’m a good candidate for homeownership, now what should I do?
Send us a message or give us a call! We can help guide you through the process of finding and purchasing your first home, or even look into custom building the home of your dreams.