Instead, two weeks after putting in a bid, Mila Gates, 27, and her husband, Jon, 26, backed out when they realized that Mila, who works as the head of social media for a marketing agency, would have had to take a second job to cover the $1,650-a-month mortgage payment. The house was listed for $205,000, but the couple put in a bid for $212,000.
That was at the beginning of May. They continue to rent a two-bedroom apartment in Lakewood, Colo., for $1,000 a month. They’ll put off homeownership for two years, Mila says, while they put money saved for a downpayment toward their combined $48,000 in student loan debt.
Despite saving enough for a downpayment, the Gateses found themselves facing many of the obstacles that have plagued the growth of the housing industry in recent years, especially where young, first-time buyers are concerned: low inventory; competing bidders who can pay cash; and struggling to figure out how to cover both a mortgage and student loan payments.
The housing crisis is arguably no longer in crisis mode – home prices and housing sales have both been on the rise in the past year, and record-low interest rates have encouraged people to return to the market. But younger buyers have been left out of the recovery more than any other age group, a USA TODAY analysis shows.
Since 2006, 25- to 34-year-olds experienced the largest decline in homeownership rates in the country, according to a USA TODAY analysis of Census Bureau data. The homeownership rate declined 7 percentage points for this age group from 2006 to 2011, going from 46.7 percent to 39.7 percent. By comparison, the national homeownership rate for all ages declined 2.7 percentage points, from 67.3 percent owning a home to 64.6 percent.
A confluence of financial burdens, combined with a bleak economic climate and plunging home prices that real estate experts say depleted confidence in investing in a house, have kept many young adults from entering the market. Meanwhile, they continue to rent or live with their parents, data show.
Among households headed by 25- to 34-year-olds, renters increased by more than a million from 2006 to 2011, while the number who own declined by nearly 1.4 million, according to USA TODAY’s analysis.
Real estate agents, young buyers, and industry researchers cite depleted confidence, high unemployment, student loan debt, poor credit, low inventory, competition with investors and stricter qualification standards as reasons for the decline in homeownership among those ages 25 to 34.
“There’s been no situation as devastating as this, and it’s probably taken a greater toll on the younger generation,” says Budge Huskey, CEO of residential brokerage Coldwell Banker. “They’ve seen other friends or acquaintances that may have even gone through a foreclosure. There’s a psychological aspect of the impact of the recession that goes beyond the mere finances.”
First-time buyers – the median age of which was 31 in 2012, according to the National Association of Realtors – are considered critical to the housing market, stimulating new-home construction, retail spending and the ability of older Americans to purchase their next homes. Without them, Baby Boomers may find it more difficult to cash in on their homes, and they could suffer long term when it comes to building up their own savings, says Chris Herbert, research director for the Joint Center for Housing Studies of Harvard University.
“Giving people the opportunity to buy a home is a way to provide them a vehicle of accumulating wealth,” he says. “Making sure this next generation has this opportunity will be important for their well-being.”
Prices, sales on the upswing
The housing market has experienced a boost in the past year, as home prices and new- and existing-home sales have gone up. New-home sales were up nearly 20 percent in 2012 from 2011; existing-home sales were up 9.4 percent, according to NAR data.
But in May, first-time buyers accounted for 28 percent of existing-home purchases, down from 34 percent a year ago and 36 percent two years ago, the NAR says. The annual State of the Nation’s Housing report put out by Harvard’s housing studies center last month shows that the inventory of homes for sale is near record lows this year.
A lack of inventory of the more affordable houses that first-time buyers are often looking for is an even bigger problem, Huskey says. While there’s an average of five months worth of inventory on the market right now, according to the NAR, that drops to two to four weeks worth of inventory for median-price homes in many markets, he says.
The Gates found themselves up against this problem when they started touring homes in January.
“There was nothing,” Mila says. “It was awful. We’d usually see one or two houses at a time, and by the time we finished touring, there’d be a contract on it from someone else.”
Local real estate agents say one of the biggest factors keeping young people from becoming homeowners is tighter lending standards. For a generation saddled with more debt than any before it, especially in the form of student loans, and dealing with high unemployment and underemployment in recent years, this has proved particularly crippling.
Soon, young people may have another reason to be wary about entering the market.
Since Federal Reserve Chairman Ben Bernanke made comments last month alluding to the central bank tapering its bond-buying program if the economy continues to improve, housing stocks have been in flux, and mortgage rates rose nearly a percentage point from a year ago, according to Freddie Mac.
Bernanke’s remarks Wednesday, however, left the door open to continued low rates if the economy doesn’t grow at a satisfactory pace.
“Rising rates are going to hurt affordability,” says Len Kiefer, deputy chief economist for Freddie Mac. He adds that it will especially affect “borrowers on the edge, and that will typically be younger households, households with less savings.”
Depends on where you are
Some areas have suffered a greater decline in the homeownership rate of those ages 25 to 34 than others. The New Orleans metro-area rate declined 20.1 percentage points, according to USA TODAY’s analysis, though its decline was likely harsher than most due to the effects of Hurricane Katrina, real estate agents there say. Palm Bay, Fla., and Deltona, Fla., metro areas were down 15.3 percentage points and 14.4 percentage points, respectively.
Since starting to look for a house in New Orleans in February, Natalie Miller and her boyfriend, Peyton Juneau, both 29, have placed bids on three homes that each went to a bidder who paid cash. Owners of two other houses they put offers on never got back to them. They won a fourth bid last week, but only by bidding about 30 percent more than the home’s asking price, Miller says.
Some major cities that have become popular destinations for recent college graduates could be experiencing a decline in homeownership because it’s not a priority for the young adults that flock to them, says Elizabeth Blakeslee, a Coldwell Banker Realtor in Washington, D.C.
“We have a very strong urban lifestyle desire,” she says of the D.C. area, where she says young people are placing more importance on a rental property’s convenience and proximity to the city. The D.C. metro area homeownership rate among 25- to 34-year-olds declined 10.8 percentage points between 2006 and 2011, from 46.6 percent to 35.8 percent.
Blakeslee hopes D.C.’s predicament will change as twenty-somethings get closer to their 30s. Housing experts insist the desire to become a homeowner hasn’t dwindled.
“What we haven’t seen is a fundamental shift in the long-term desire to become homeowners,” Herbert says. “But we have seen both a declining ability, as well as the willingness to make that leap in the last few years.”
Copyright © USA TODAY 2013, Cheryl Gerber
