Soaring rents and stagnant wages have pushed the dream of homeownership out of reach for most Millennials, another signal of the country’s economic collapse since the 2008 financial crisis.
According to a new report by Zillow, young Americans are now waiting longer than ever to buy their first house. On Monday, the real estate data firm announced the median age of first-time buyers rose to 34 between 2010 and 2015, up from 31 between 2005 and 2010. (Source: Zillow, last accessed August 20, 2015.)
Millennials are “still very interested in buying a house, but they’re delaying that decision,” said Svenja Gudell, chief economist at Zillow. “Once they start having kids, they begin looking for homes.”
“We’re also finding that—given how much rental rates are currently rising—a lot of folks are having a hard time saving for a down payment and qualifying for a mortgage.”
The report shows just how hard Millennials have been hit since the financial crisis in 2008. Over the past few years, soaring foreclosures have forced millions of families into the rental market, pushing up rents and crimping the savings of young households.
Today, 46% of renters between age 25 to 34 allocate more than 30% of their income to pay for rent, the maximum percentage recommend by economists and personal finance experts. That figure is up from 40% of young households only a decade ago. (Source: The State of the Nation’s Housing 2015, last accessed August 20, 2015.)
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At the same time, ultra-low interest rates by the Federal Reserve have sent housing prices soaring, further pushing homeownership out of reach. In the early 1970s, first-time home buyers were paying just 1.7 times their income for a starter home. Today, new buyers are paying a median price of $140,238—nearly 2.6 times their income.
These shifts help explain why homeownership, long a source of middle-class identity and economic opportunity, has started to decline. The portion of the U.S. population who own homes has slid to a 48-year low last month, coming in at 63.5%. (Source: Residential Vacancies and Homeownership in the Second Quarter 2015, last accessed August 2, 2015.)
The situation is not expected to get better anytime soon. The cost of renting a home continues to rise faster than wages across wide swaths of the country, putting a big squeeze on many household budgets. Higher interest rates, brought about by a Federal Reserve interest rate hike in September, could also make mortgages more unaffordable.