The house needed work – weatherproofing, a new back fence, a basement to
transform into a bedroom – but the couple were excited nonetheless. The
house would have been their first.
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
