A recent survey by Apartment List of 30,000 lenders across the United States indicates that, although the vast majority of millennial renters (79 percent) want to purchase a home, many are finding it too expensive. More than 80 percent of millennials on the west coast, especially, find affordability a concern and state that they cannot afford to buy a home. Overall, 77 percent said that affordability is the reason they’re currently unable to purchase a home.
By contrast, 40 percent of millennial renters said that they are waiting to settle down or be married before purchasing a home. Nonetheless, most millennials (74 percent) plan on purchasing a home within the next five years. Only 5 percent of those surveyed stated that they planned to buy within the next year. Only 6 percent reported that they expect to always rent.
Conversely, millennials in cities away from the coasts reported being less concerned about affordability, but the numbers are still fairly high. Millennials in Detroit (64%), Charlotte (68%) and Atlanta (68%) were most likely to list affordability as an issue.
However, the survey found that many millennials in expensive metropolitan areas significantly underestimate the amount they need to save for a downpayment. In fact, Apartment List estimated that many renters will need a decade or more before they are able to save enough for a 20 percent downpayment, using data on starter home prices and millennials’ average savings rates.
“The results varied widely across metropolitan areas,” Andrew Woo, manager of growth and strategy at Apartment List, stated in the survey. “Millennials in the Bay Area have the most unrealistic expectations, with the average renter there underestimating their downpayment amount by more than $73,000. Other expensive metros with fast-rising home prices had similar results – for example, Seattle, Sacramento, and Denver have all seen home price increases of more than 10 percent in the past year, and millennial expectations may not have caught up.”
Woo continued by stating that in some cities millennials expect to need to save far more than what is needed.
“On the other side of the spectrum, millennials in Detroit, Philadelphia, and St. Louis expect are planning on saving more for a downpayment than may be necessary – perhaps because they are planning on purchasing a nicer home. The starter home price in the Detroit area is $17,950, but a house in a safer neighborhood with better schools could cost quite a bit more. In Kansas City, Mo., renters are planning on saving an extra $5,000, which could take an additional year or two, but could mean a larger home with better amenities,” Woo said.
Another issue that the survey revealed was that a significant portion of millennials simply are not saving. According to the survey, roughly 40 percent of millennials are not saving anything for a downpayment. Nearly 30 percent of young millennials (aged 18-24) have saved less than $1,000, compared with approximately 25 percent of older millennials (aged 25-34). Slightly more than 10 percent of older millennials have saved more than $10,000, compared with approximately 5 percent of younger millennials.
Nonetheless, millennials might be able to obtain a mortgage with a downpayment lower than 20 percent, depending on other financial circumstances.
It should be noted that the survey was conducted from November 2015 to February 2016 of renters searching for an apartment on the Apartment List website.