In housing markets across the country, rapid home-price growth and low inventories of affordable housing make it harder for prospective homebuyers to get their foot in the door. That's especially true for millennials, nearly half of whom identified cost of living as one of the biggest barriers to buying a home compared with other generations, according to a new Bankrate survey.
Forty-five percent of millennials – ages 23 to 38 – cite cost of living as holding them back from buying a home, compared with just 38% of Gen Xers – ages 39 to 54 – and 31% of baby boomers –ages 55 to 73. Student loan debt, which is now at $1.6 trillion, also disproportionately stands in millennials' way, with 23% citing it as a roadblock compared with just 15% of Gen Xers and 5% of baby boomers who want to buy a home.
Bankrate's survey gauges Americans' ability to save for a down payment and closing costs – and their knowledge about minimum requirements – during a time when the country's notable lack of affordable housing in many areas is a hot-button issue. Those who don't own a home but want to often are hampered by income that isn't high enough, coupled with high living costs. And that's forcing younger homebuyers, in particular, to find creative ways to realize their dream of homeownership.
Other key findings from the nationwide survey:
• Millennials are most likely to save their own down payment money; about 53% do so compared with 47% of Gen Xers and 45% of baby boomers.
• On average, millennial homeowners needed three full years to save for their down payment; Gen Xers needed two years and nine months; baby boomers needed two years and six months.
• Just over half or 51% of all U.S. adults didn't know the minimum down payment required to buy a home.
Although younger homebuyers may feel the deck is stacked against them financially, they're using multiple avenues to fund the down payment and closing costs for their first home.
In addition to actively saving more of their money toward a down payment and closing costs than other generations, 33% of millennial homeowners say they used a down payment assistance program or grant, compared with 27% of Gen Xers.
One worrisome finding shows that millennials are twice as likely to dip into their retirement savings than other generations to fund their housing costs, which can spell trouble later on. With Americans not saving enough for retirement, tapping a 401(k) account to pay for a house can hurt millennials' financial security in their later years.
In many cases, perceived barriers to homeownership could be easily overcome with the right guidance and education, says Bruce McClary, vice president of communications with the nonprofit National Federation for Credit Counseling. A good first step: talking to a HUD-approved housing counselor who can provide specific guidance for your situation.
Income, for example, is a factor that many people say prevents them thinking they can buy a home, but there are loan programs and down payment assistance grants to help those folks, McClary says.
"People of all income levels transition from renting to homeownership, even in housing markets that seem more challenging than others," McClary says. "Credit issues are another area of misconception because people assume their credit doesn't meet the right guidelines. It's not a permanent impediment (to homeownership)."
While some folks have no desire to own a home, those who do have this goal in their sights worry about being able to make it a reality. One in 3 respondents or 32 % don't think they'll ever be able to save enough for a down payment and closing costs, Bankrate's survey found. This sentiment becomes more pronounced with age:
• 27% of millennials say they don't ever think they'll be able to save enough for a down payment.
• 37% of Gen Xers don't think they can save enough.
• 60% of baby boomers feel the same way.
First-time homebuyers, as a whole, rarely put down 10% or more on their first homes. In fact, the median down payment amount for first-home buyers is 7%, according to the National Association of Realtors' 2018 Profile of Home Buyers and Sellers.
The decline in median down payment amounts highlights the accessibility of low down payment loan programs, but it also shows major gaps between income and home-price growth, says Jessica Lautz, vice president of demographics with NAR.
"Wages simply aren't keeping pace with home prices," Lautz says. Indeed, a NAR calculation from March shows that between 2012 and 2018, home prices jumped 47% while wages rose 16% comparatively.
Saving up to buy a home is more like a marathon than a sprint, especially for younger homebuyers.
Older generations were typically able to do so faster. Of those who were able to save in under 10 years, baby boomers needed two years and six months while Gen Xers needed two years and nine months. Millennials, though, needed a full three years.
Some of these perceptions could have something to do with the fact that Americans, in general, have skewed notions of the minimum down payment requirements to buy a home.
When asked about the minimum required down payment, 51% of Americans didn't know the answer. Another 1 in 4 (28%) said 20% or more of the purchase price is required.
Just 2% of all respondents said 0 to 5% down, which is the actual standard minimum, depending on the loan program. All government-insured loans fall into this area, as well as conventional loan programs that require a minimum of 3% down. However, it seems respondents aren't fully aware of these options that offer a more affordable entry into homeownership.
Bankrate commissioned YouGov Plc to conduct the survey with 2,582 U.S. adults. The survey was conducted online from July 31 through Aug. 2.