Will millennials ever be homeowners?
Student-loan debt and unemployment shackle many adults in their 20s and 30s, the traditional first-time homebuyers. These tips may help some qualify for loans.
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The recent recession kicked the millennial generation — those in their 20s and early 30s — in the teeth. Some wonder if they'll ever be able to own a home. Experts worry, too, especially because the housing market depends on young, first-time buyers.
The downturn began just as many young adults were entering the workforce. Americans ages 20 to 24 suffered a 12.9% unemployment rate in May. That was actually an improvement from 14.6% last year. (Bing: What's the rationale behind naming generations?)
A college education is supposed to give job seekers an advantage. But to get it, many took on loans that now prevent them from qualifying for a mortgage.
"Sobering" is how the Consumer Financial Protection Bureau describes the roughly $1 trillion that Americans owe on school loans, 67% of it owed by people under 40. Just over half of college graduates from 2006 through 2011 have full-time jobs, yet six in 10 have student loans with an average balance of $20,000.
In another time, Amanda Bate would have been a typical first-time homebuyer. She has always wanted to own a home. Now that she's 26, with interest rates and home prices at or near record lows, the time seems right. She went shopping this spring near her workplace in Birmingham, Mich.
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"The housing market was so low. I thought, 'I could possibly get a house,'" she says.
The house she loved was listed at $80,000. The mortgage payments would have been about $500 a month, cheaper than the $610 a month she'd paid when she rented an apartment.
But the mortgage broker dumped cold water on her dreams. Even working a full-time job, plus a part-time job on weekends, and even though her parents have been helping pay her student loans, buying a home was out of the question.
For one thing, she'd need an $11,000 down payment. "I don't even have a savings account," she says.
But it's her student loans — $1,470 a month in payments on $123,000 in combined balances — that have made buying impossible. Bate earns just $30,000 as marketing director for a small media company.
She says she wishes someone had warned her. She now can't imagine when she can ever buy a home of her own. Meanwhile, she's living with her family, like one in five 25- to 34-year-olds, and "everything I have goes into those loans."
- On our blog, 'Listed': First-time homebuyers shut out in some cities
A generation struggling
Some experts see the double curse of unemployment and student debt as an ominous sign, not only for millennials but also for the whole economy.
- MSN Money: Are millennials saving the economy?
"Debt, coupled with double-digit unemployment, has hobbled millions of young adults who would have bought homes, married, had children and feathered their nests with all the middle-class goodies that keep our economy humming," demographer Cheryl Russell writes.
Tighter mortgage-lending requirements add to the trouble for young would-be homebuyers. The numbers paint a picture of a generation falling behind:
- 36.8% of people under 35 own homes, down from 43% in 2006.
- 61.4% of people ages 35 to 44 are homeowners, down from nearly 69% in 2006.
- Just 9% of people ages 29 to 34 got mortgages in 2009 to 2011, compared with 17% a decade earlier, even before home prices inflated and mortgages became easy to get.
- 40% of those with student loans have put off making big purchases such as homes and cars.
But Paul Ashworth, an economist with economic-research firm Capital Economics, says he isn't convinced that student debt will prevent millennials from eventually owning homes. Despite recent widespread concern over student borrowing, sketchy data make it hard to know if the proportion of borrowing is worse than in the past, he says.
At roughly $1 trillion, student debt is greater than outstanding auto loans ($730 billion) or credit-card balances ($693 billion). But it's unclear if that's a change, Ashworth says. "My big thing is, is it any different than it used to be?" he says.
Also, on the upside, six-digit student-loan balances like Bate's are unusual. Just 3.1% of borrowers owe more than $100,000. Most borrowers, 72%, owe less than $25,000. That's still sizable, especially if your salary is $25,000 or $30,000, and 14.4% of borrowers have missed at least one payment, so many clearly find their loans hard to repay. But it's equivalent to buying a new car — a big purchase, but one many young people manage.
There's no question, though, that many young adults are struggling.
"These were people who were most likely to be buying a home with very little equity at the very top of the boom," Ashworth says. "They would also have been the people who got whacked the hardest when the market turned down because they wouldn't have had the time to build up equity." That makes them more prone to foreclosure and negative equity.
Let me get this straight. This air-head walked into a bank expecting to be loaned $80,000 ON TOP of her already $123,000 debt and zero savings and she is DUMBSTRUCK that she didn't get a loan. She needs to sue her college or university for taking her money and graduating her as a disfunctional idiot.
I have three sons & worry about them buying a house & leading a finanically stable life. I talk to them often about $, Sometimes, they listen , sometimes they don't.
They are all working w/o going to college and have no student loans to worry about. LIfe is not easy for them being blue-collar workers. Every parent wants their kids to do better than she; although, I worked very hard as a single mom, I still think I had it better than these 30 -40 something adults.
In one sentence: "She says she sees now that she could have used more help with planning."
Then the very next statement, "Her parents warned that debt would make it hard to buy a home. But she did not understand what that meant, she says."
Ahhh, Bate. You got "more help with planning". Your parents warned you. It wasn't that you didn't understand (unless you're unusually ignorant); It's just that it wasn't what you wanted to hear.
"The Millenials" are screwed, as far as being first-time home buyers. I have two sons in their late 20s, and I listen to all their friends. They talk of low wages, even though many are college graduates. Their college degrees are not in question; they were Business majors, Engineering, Accounting, etc. - not a bunch of Basketweavers. The fact is: There are very few jobs for anyone, and what jobs there are - don't pay squat any more. All jobs offer is about $20K per year to start - promotions happen, but pay raises don't. All they get is a new title, and more "responsibility", but no more money.
Argue all day long about the "Whys?" of it - the fact is, young peoples' wages are not going up, they're going down, and this, while home financing is harder than ever, and the cost of everything else goes up. They're going to be one generation of really bitter, pissed-off renters, and THEY SHOULD BE. To business managers and the powers that be: When you screw people over for life, you'd better not turn your backs on them.
I am 29 and fit into this group not to toot my own horn but my wife and I bought our house in 2008 , just paid off both of our cars and have no other debt but the mortgage. We do have a saving around 5,000 I worked went to college and paid for classes as I went. She work as a receptionist and I am a carpenter. We are doing just fine I think. What ever happened to living within "your own means" if you can not afford a 100,000 big name college education then don't get it until you can afford to. it is common sense where are the parents to teach these kids? Ya you want better for your children than you had but at what cost my family wasn't rich by any means but it was stable and I am very thankful for that. I agree with Alan mc. why is this so embedded in us we need the latest tech toys we just bought our first flat screen tv a week ago 32" (we had been using a big old 27" tube projector I bought when I was like 19) what do you need a 90" tv for like I said before live within ("your") means not your friends.
This is something that really bugs me. Parents are not obligated to pay for their childs college education. The young adult needs to learn the value of a dollar and paying for his or her college is just giving them one more free ride in life. If your like me and your not going to pay for their education then give them the best advice you can give them by letting them know that joining the military is a very respectful way of earnly a college education through tuition assistance and the GI bill. Just four years and they will be debt free, out of the military (if they choose) and have the GI bill to further their education if they hadnt used tuition assistance while they were in the service. Give them alternatives. Never take out a student loan!
Affording a mortgage is the least of home buying problems. I looked at a new house the other day. It was $129K. The place was a good size, construction and energy efficiency were top of the line. At a bit less than 1600 sq. ft. it fits my needs perfectly. I have a new car loan - $405 a month for three years of which two and a quarter remain. My credit score is 813. My retirement, $30K income net of taxes and medical insurance, provides a modest but comfortable life style.
The house was some 30 miles further out of Houston in a designated rural area. The U S Department of Agriculture has a loan program, which would have loaned me 100% of the house cost at a rate of 3.75% wuth no PMI. (FHA - 3.5% down payment, 3.75% rate, and 1.25% PMI -- Texas no down payment option 4% rate and 1.25% PMI) The builder would have paid all but $500 of closing costs. The monthly mortgage would have cost about $614 a month, which is less than my current $667, utilities included, rent.
BUT.................... The total cost of living in that house would really have been a much less affordable $1,126 a month when you include operating costs. An astounding 3.4% local property tax rate, $150 and $100 a month costs of electricity and water/sewer, respectively, were big other costs pushing up the total operating costs. I did not include increased costs for my car, because I don't have to drive the extra 60 miles a day to work. If I did, ignoring other vehicle costs, adding the cost of three gallons a day would have added about $200 a month in increased costs.
Older houses cost more than new houses. Often much more, because maintenance and repair costs are almost certainly going to "eat your lunch". Buying new is not only nice, but a financially smart move.
I could have afforded the place within my budget, but it would have left me 'house poor' with little disposable income. Bottom line - I did not feel that it was financially responsible to buy the place even though the USDA would have loaned me the money under either of its programs. I would have needed and gotten a loan ratio waiver to qualify.
You have to look at total costs, not just monthly mortgage costs when buying a house. If you don't, you could and probably will end up losing the place and end up in even worse financial condition.
If I were young and had a student loan costing $1,470 a month like the gal in the article, buying a tent would be about the only house that I could afford. After income taxes, social security and medicare her take home income is probably a bit more than $26,000. Take away $17,640 that she says she pays in student loans and she is left with $8,360 to spend on everything else.
She also says that she was paying $7,320 ($610 a month) for rent. Let's assume that her rent includes electricity/gas, water, and garbage costs. After rent is paid she has $1,040 a year left to pay for everything else.
Her numbers make no sense. Unless she avoids spending money on 'luxuries' like a telephone, clothes, transportation, etc. I'll bet she is in arrears on her student loan payment. She doesn't make enough to pay it.
She would have been better off getting a job at the local supermarket, Wal-Mart, etc. at minimum wage for four years and working her way up the ladder than going to college for four years, going in debt $123K, and getting a degree of questionable value. My five years, working full time to pay for university while attending college at night, were not as much fun as I hope her four years were.
Every student applying for college should have to take a finance course, explaining the cost of existing outside the womb of mom and Dad's paycheck and the true cost of attending college. The young lady would have been well served to have taken one. Obviously needs one today, if she thinks that she only needs a downpayment to afford the $80k house that she found.
These are the same people that put the marxist in the white house.
They will vote for him again too.
They will never own anything if they put him in again.
If they think it's bad now wait until they surrender their liberty to the king.
The young still defend this despot.
The answer to that question is a big "YES"! It may take a little longer but millennials will follow in the footsteps of the parents and grandparents, embrace the American Dream and buy homes.
It is giving loans to people that can't afford them that caused all this problem in the first place. So, good job should go to the bank that told her no.
If her parents really wanted to help her, they should have helped her pay for her college instead of letting her rack up this much debt and then offering to help pay off the student loans. Now she is under a mountain of debt that is going to take her decades to get out of, with a low paying job (really, who racks up $120K+ debt for a 30K a year job?).
Poor decisions by banks and individuals led us to the situation our economy is currently in. Poor decisions by an individual and a good decision by a bank led to the situation that this woman is in. At least someone learned from past mistakes.
Being a 'millenial' myself (thanks for the dumb name, guess its better than baby boomer LOL), I have had to learn finances through the school of hard knocks. When I was learning about finances political and economic policies made it possible for almost anyone to get a loan for almost anything regardless of credit history or ability to pay. I purchased a home that I couldn't afford when I was in my early 20s with no money down because my credit score was good and I could afford the first year of payment of a 2 year rate buydown. After that, car loans, credit cards, everything was easy to get. If we ever ran out of money, we would get another loan to help us get by. My parents did a poor job of teaching us finances... constantly refinancing their home to buy cars, take vacations, none of which they could really afford. The lessons I learned from them are that home prices will always increase, and loans will always be available to help you out. They are now in their late 60s are still paying for their mistakes.
The house I purchased became to much to handle and was sold 2 years later, eventually forcing my wife and kids and I to move into a parents basement to make some of the minumum payments on our debts, even with a decent job. Many years later, after a layoff and chapter 7 bankruptcy, I am finally saving money and following a strict budget, in hopes of someday being able to own a home again, this time, the right way.
I fault a bad financial example from my parents, and loose policies regarding loan requirements, and bad political ideas during the era I was learning financial responsibility. I hope I will be able to teach my children the right way to do things.
I see big problems with this age group, and my children are there also. They don't save any money, always have to get the next version of I-Pad and every other idiot pacifier on the Market. They seem to compete with each other so see who can purchase the dumbest things. I-phones, Gigantic Big Screens, over priced non-american cars, and the list could go on forever. They have no sense about how to purchase products that will make our country get on the road to recovery. It's all about them and screw you if you disagree. They continually will come up with a very lame justification for their purchase habits.
They cannot read well enough to check if a product says made in China, and then they wonder why they cannot find a good job. I guess to them jobs just materialize without a consumer base. It's like they have no idea what creates growth and employment.