An affordability crisis is making some young Americans give up on ever owning a home
By Bryan Mena, CNN
Washington, DC (CNN) — Americans are living through the toughest housing market in a generation and, for some young people, the quintessential dream of owning a home is slipping away.
MortgageĀ ratesĀ surged in recent years, hitting the highest levels in more than two decades last fall. While rates have come down slightly since then, home prices remain painfully elevated and a limited inventory of housing is still failing to keep up with demand. Such conditions mean that housing has become woefully unaffordable.
Falling mortgage rates in recent weeks have helped, but home prices could remain sticky, according to economists. Itās still a cruddy time to be hunting for a home, but itās even worse for young, first-time buyers who need to save up for a down payment and build up their credit score during a time when Baby Boomers are refusing to part with their big houses.
The situation isnāt a whole lot better for renters, with rents barely coming down from record highs and half of tenants in that market saying they canāt even afford their payments.
The uneasiness over Americaās affordability crisis is captured clearly in surveys and polls, but data that outlines the sentiment specifically among young people is limited.
CNN spoke with some young Americans about their thoughts on the current state of the US housing market and their plans for the future.
Surviving is the priority, not saving for a down payment or even having kids
Brandie Grant, 35, lives in the San Francisco Bay Area, one of the most expensive housing markets in the country. Despite a difficult upbringing, she pushed herself to graduate from college with a bachelorās degree and is now making $76,000 a year as a senior consultant for an academic publishing company, but she said she is barely making ends meet.
After paying all her bills each month, including $500 to chip away at more than $90,000 in student debt, Grant said she doesnāt have enough to save for a down payment.
āIām real, real tired,ā she said. āHaving kids will never be on the table. I havenāt even put a cent in my retirement fund, so there is just zero hope for me to ever own a home.ā
The minimum down payment required to purchase a home depends on various factors, such as the type of mortgage being taken out, the prospective homebuyerās credit score, and the propertyās asking price. The conventional wisdom is that hopeful buyers should save to put down 20% before shopping around, but doing that is a pipe dream for those who canāt even save to begin with.
But the typical downpayment for a first-time home buyer is usually much less: 6% last year, according to the National Association of Realtors. A government-backed Federal Housing Administration loan requires a downpayment of as little as 3.5%. But even saving up that much can be daunting.
And itās taking nine years for the typical homebuyer to save up for the median down payment on a home with the median value in the United States, according to Zillow data.
Building up a down payment has also been difficult for Ross Bunton, a 26-year-old case manager living in St. Louis, Missouri, with his wife. Thatās mostly due to a combination of how expensive his rent is and their costly medical bills, which eat up a significant portion of the coupleās monthly budget, he said.
Their current financial situation means having kids anytime soon is out of the question, he told CNN.
āI genuinely havenāt been able to save money over the past year,ā Bunton said. āI donāt think that buying a house is super realistic for me even within the next couple of years, so Iām not really thinking about that right now, and if me and my wife were to have children, we would definitely want to be financially comfortable or capable of doing that. So, I also donāt see that as being realistic.ā
Staying with parents, leaving the country
For some, living with parents is the best option, and that certainly seems to be the case nowadays with housing affordability out of reach for many young people.
More than half of US adults between ages 18 and 24 lived with their parents in 2023. Thatās been the reality for Corey Griffis, 24, who lives at his parentsā home in Portland, Oregon.
He graduated with a masterās degree in history last year from Montana State University, but said he hasnāt had any luck finding a job. Aside from not having the financial stability of full-time employment just yet, he said he doesnāt find it possible to own a home someday unless he finds a partner first.
āHaving two income streams does a lot for you, and I canāt imagine owning a home until Iām partnered with somebody,ā Griffis said. āThe housing market is not a single personās market.ā
What typically happens when a regional housing market becomes too unaffordable is that people without the means simply move somewhere cheaper, such as a suburb an hour away, for example. A less common option is moving to a completely different country.
Shyahm Aguilar, 37, is a naturalized US citizen who came to the country from Mexico as a child back in the 1980s. He currently works at a hotel in Santa Fe, New Mexico, the most expensive market in the state, living in a rental single-family home with his sister and her three daughters.
Aguilar said he doesnāt think owning a home in Santa Fe is āa reality in the next 10 years,ā but that moving to Merida, Mexico, sometime in 2025 to start a laundromat business with his partner, who is currently working in Colorado, would probably be a much better bet.
āWashers and dryers are not that expensive in Mexico, and weāve already looked at the price to start a lavanderia [laundromat], which would be like $10,000,ā Aguilar said. āI can take that money to open a business over there. Over here, thatās not even enough as a down payment for a house.ā
The data, the outlook and the solutions
High mortgage rates are a big reason why some feel so dismayed with Americaās housing market. But thereās been some good news lately.
The Federal Reserve has signaled that it will soon cut interest rates now that decades-high inflation has eased off. Such a move will affect the average 30-year fixed mortgage rate, though economists say they doubt rates will fall below 6% this year.
The prospect of lower monthly mortgage payments has already improved Americansā attitudes toward the housing market, according to Fannie Maeās latest National Housing Survey, released last month.
āHomeowners have told us repeatedly as of late that high mortgage rates are the top reason why itās both a bad time to buy and sell a home, and so a more positive mortgage rate outlook may [incentivize] some to list their homes for sale, helping increase the supply of existing homes in the new year,ā Mark Palim, vice president and deputy chief economist at Fannie Mae, said in a release.
Still, affordability takes into account mortgage rates, family incomes and single-family home prices, which remain a vexing pain point. The 2023 median home sale price was $389,800, according to NAR, up about 1% from 2022 and the highest on record. Lower mortgage rates would improve affordability, but better zoning laws could have a more durable impact.
āThe sustainable solution is to make it easier to build housing. That way we can actually start heading in the right direction with affordability and have that be sustainable and not just a short-term interest rate phenomenon,ā Daryl Fairweather, Redfinās chief economist, told CNN.
Fairweatherās tips for young first-time buyers: Keep saving this year for when housing conditions further improve in 2025, invest some money into an index fund since the stock market is currently going strong; be realistic about what neighborhoods you should live in; and consider other more affordable housing options, such as a condominium or a townhouse.
Sofiya Vyshnevska, chief operating officer atĀ NewHomesMate, said that newly constructed homes may be a viable option for first-time buyersĀ because some homebuilders are proposing incentives towards closing costs, such as a 2-1 buydown, whichĀ is a type of financing that lowers the interest rate for the first two years before it rises to the regular, permanent rate.
Vyshnevska said those deals are becoming more common in cities that have ramped up residential construction in recent years such as Minneapolis; Houston; Dallas; Austin, Texas; Tampa, Jacksonville, and Orlando in Florida; and Atlanta and Phoenix.
āYoung, first-time homebuyers usually donāt know about that because there isnāt one place where they can see all of these incentives, so approaching the builder directly to make the deal work is a good option,ā she said.
The-CNN-Wire
™ & © 2024 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.