What’s preventing millennials from buying homes?
Millennials, especially first-time homebuyers, face a difficult housing market. First, home prices are rising. When I meet with millennial first-time homebuyers, many get sticker shock. According to the Honolulu Board of Realtors®, the median sales price of single-family homes, in July 2018, was $785,500. This was a 5.3 percent increase from the same time last year. In addition, the median sales price of a condo, in July 2018, was $429,500. This was a 1.1 percent increase from July 2017.
In addition, it’s often been documented that Hawaii has an [“affordable”] housing crisis. With low inventory and high prices, first-time homebuyers can be deterred. Interesting, according to the National Association of Realtors® 2018 Home Buyer and Seller Generational Trends study, more than a third (36 percent) of all home purchases in 2018 were made my millennials. This was a 2 percent increase from 2017.
Another factor why millennials could be delaying homeownership is due to rising mortgage rates. Freddie Mac anticipates mortgage rates to grow to 5.1 percent in 2019. That’s a 1.1 percent increase since 2017.
Let’s say you were purchasing a condo for $400,000. The interest rate is 4 percent and you’re putting 20 percent down. Your monthly mortgage payment (not including property taxes, maintenance fee, etc.) is roughly $1,500.
Now, let’s change the interest rate to 5 percent. Using the same purchase price and down payment amount, your monthly mortgage payment is roughly $1,700. This $200 increase, or $2,400 extra a year, could affect your mortgage prequalification.
Despite mortgage rates increasing, it’s important to note that we’re still in a “low” interest rate environment. In the 1980s and 1990s, mortgage rates were double digits. Likewise, in the early 2000s, mortgage rates were over 8 percent.
I’ve represented a handful of millennial first-time homebuyers this year. These clients had student debt, worked “9 to 5” jobs, and could be considered middle class. What made them different from other millennials? Well, there’s no secret – the answer is simple. My clients made homeownership their number one priority; these people were determined to become a homeowners.
-RO