The number of people purchasing their first home, especially millennials, could be impacted negatively by shifting demographics as the median age for marriage is rising.
A recent survey by NeighborWorks America, the Washington, D.C.-based affordable housing organization, found that 43 percent the respondents said they intended to buy a home when they “got married or moved in with a life partner.” The median age for a first marriage has risen to 29.3 years old for men and 27 years old for women, according to the U.S. Census Bureau. In 2000, men first got married at 26.8 years old while the median age for women was 25.1 years old.
Other respondents said they would wait to buy a home when other changes occurred, with 22 percent who will purchase one when they have children and 18 percent who are still seeking their first full-time job.
Many millennials are delaying the purchase of a home because not only are they waiting until they are older to get married, a large percentage are also saddled with a large amount of student loans. The survey also demonstrated that 57 percent respondents admitted that student loans were either “very much” or “somewhat” of an obstacle, a rising concern compared to 49 percent who expressed this sentiment in 2014.
“Homeownership rates are likely being impacted by declining marriage rates as life events that impact the composition of the household are drivers of housing demand,” said Jonathan Smoke, chief economist of Realtor.com, the San Jose, California-based real estate service company. “Student debt, limited savings and housing affordability are substantial obstacles facing millennials as they consider the path to homeownership, and those issues are all connected.”
Another compelling factor is that with two incomes, couples are more likely to qualify for a mortgage and have enough savings for a downpayment.
“Having more singles means fewer households are in a financial position to buy,” he said. “So with fewer young married households, there would be less demand for owning.”
Older Millennials Buying Homes
Some older millennials, or those who are 25 to 34 years old, are buying homes in “large numbers this year,” due to a stronger job market, Smoke said. The number of first-time buyers of current homes increased to 32 percent in August compared to 28 percent in July, according to the National Association of Realtors, the Chicago-based trade group. Half of all home sales for the first six months of the year can be attributed to people buying a home for the first time, he said. Millennials make up 68 percent of all first-time homebuyers, according to the trade group.
“They are the single biggest age group for homebuyers, so there are clearly substantial numbers of them who are able to overcome these obstacles,” Smoke said.
Rising Debt Delaying Home Purchases
Student debt is a large factor in whether millennials can qualify for a mortgage, depending on their income, said Smoke. The burden increases substantially for people who attended college and took out loans to fund their education, but never received a degree.
“For those who did get a degree, but have above average loan debts as well as other types of debts, there is no question that at a certain level, debt will exceed the upper limits of the debt to income qualification ratios,” he said.
Potential lenders want to know if you can afford to pay back the money you borrowed.
Millennials and Gen-Xers are relying more heavily on loans to fund their educations nowadays. The Federal Reserve estimates the average amount of undergraduate student loan debt for the class of 2014 at just over $33,000, a substantial increase from $18,600 in 2004.
A 2014 analysis conducted by the Pew Research Center showed that from 1992 to 2011, college students are borrowing more money in all income groups, ranging from low to high income brackets. The standard amount of cumulative student debt for their undergraduate degree increased from $12,434 for the class of 1992-93 to $26,885 for the class of 2011-12 (figures adjusted for inflation).
By 2012, “a record share of the nation’s new college graduates or 69 percent” had used student loans to finance their degrees and the “typical amount they had borrowed was more than twice that of college graduates 20 years ago,” the report said.
Categorizing student loans as good debt is a misnomer, because lenders are examining a consumer’s debt to income ratio and the odds that they can make monthly payments on time, said Jeff Golding, chief growth officer at IRH Capital, a Northbrook, Illinois-based financial company.
“Potential lenders want to know if you can afford to pay back the money you borrowed,” he said. “If you are maxed out on all your loans, you have already extended all the credit that’s been given to you.”
High Rent and Other Factors
Other issues hindering millennials from buying a home is the ability to save up enough money for a downpayment. Until the increase in monthly rent prices throughout the U.S. for apartments and other housing is abated, it poses a “substantial” barrier for Gen-Yers to save an adequate amount of money, Smoke said.
“Unfortunately, rents continue to rise as a result of record numbers of renters and low vacancies, so this situation will not get better until we see a substantial increase in the construction of affordable housing,” he said.
Several reports and studies have shown that millennials are returning home and living with their parents while they obtain full-time jobs or establish their careers.
“The state of the economy has interfered with their ability to maintain a steady income and this has likely delayed marriage,” said David Reiss, a law professor at Brooklyn Law School. “As a result, they are less likely to become homeowners.”
What’s more, the lack of job security in the current economy has dampened many people’s enthusiasm to own a home.
“Buying a home is a big commitment to your future self and your family: ‘I will make that mortgage payment come hell or high water,’ ” he said. “Fewer people are going to want to make that commitment if the job market does not give them a reasonable basis to believe that they can live up to it.”