Tag: millennials

What is the Affect of Student Loan Debt On Homeownership?

Millennial on scooter wearing hat and sunglasses looking up towards the blue sky

With student debt making headlines on a regular basis, and the rates of homeownership being lower, is there a connection? Maybe.

In the first issue of Consumer & Community Context, a publication from the Federal Reserve, an article by Alvaro Mezza, Daniel Ringo, and Kamila Sommer, Federal Reserve Board Division of Research & Statistics entitled, “Can Student Loan Debt Explain Low Homeownership Rates for Young Adults?”, Mezza et al write,

While many factors have influenced the downward slide in the rate of homeownership, some believe that the historic levels of student loan debt have been particular impediments. Indeed, outstanding student loan balances have more than doubled in real terms (to about $1.5 trillion) in the last decade, with average real student loan debt per capita for individuals ages 24 to 32 rising from about $5,000 in 2005 to $10,000 in 2014. In surveys, young adults commonly report that their student loan debts are preventing them from buying a home.

and,

We found that a $1,000 increase in student loan debt . . . causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s.

In a study by the Federal Reserve in 2017, they found that every $1k in student loan debt postpones homeownership by about two and a half months. However, “postponed” is not the same as “canceled”! By time time higher education graduates reach their thirties, student loan debt has a reduced affect on rates of homeownership.

We have written before about the wealth-building power of paying a mortgage over paying rent, and student loan debt is similarly and investment into one’s career. The boosted earning potential of a generation of more college graduates is bound to catch up to the burden of the debt that helped fuel it.

Is it better to pay down debt, or to save for a down payment?

There is no one-size-fits-all answer to this question. No matter whether you have prioritized paying your student loan debt or saving for a down payment, if you would like to take a closer look at what makes the most sense for you, contact us. Our job is to work with you to find the right solution for your financial goals.

Find your Benchmark branch and contact them today for more information.Give us a call or contact us today. At Benchmark, we’ve got your back.Give me a call, send me an email, or request a call today. My team and I got your back.

2018 Homeownership Profiles: Millennial Buyers

by I Am Benchmark

In 2017, Australian millionaire Tim Gurner famously attempted to blame millennial homebuyer obstacles on their inability to avoid frivolous spending on $19 avocado toast, in comments that were widely mocked throughout the internet.

Many commentators are still quick to point the finger at extravagant spending to explain why homeownership among younger adults has declined compared to previous generations. However, the more likely culprit is soaring student loan debt and a limited supply of homes causing rapidly inflating prices, which is making it more difficult for millennials to afford homes.

Despite what you hear, it’s not all doom and gloom for aspiring millennial homebuyers. According to the National Association of Realtors (NAR) latest study, millennials continue to be the largest generational cohort of buyers, making up 36% of the purchase market.

Check out the latest statistics and trends among this influential bloc of homebuyers.

Stats About Millennials

Many people still think of millennials as teenagers, instead of young adults in their 20’s and 30’s who currently make up the largest generation in the workforce. NAR’s study defines millennials as buyers age 20-37.

Of this group:

22% of millennial buyers are age 20-27, while 78% are age 28-37. The median age was 31.
66% were married couples, 18% were single, and 15% were unmarried couples
65% were first time homebuyers
Prior to buying, 56% rented an apartment or house, 18% lived with parents/relatives/or friends, and 24% owned a previous home

Millennials As Homeowners

89% purchased previously built homes and 11% purchased new homes. Better price was cited as the number one reason buyers purchased previously owned homes.
Quality of the neighborhood, convenience to job, and overall affordability of homes were the top reasons millennial buyers chose their neighborhood.
The median purchase price was $220,000
44% paid asking price or higher for their home

Millennials and Home Financing

98% of millennials financed their home purchase, compared to 88% overall
75% used savings for the down payment, 23% used gift funds, and 21% used proceeds from the sale of a primary residence (respondents could select more than one source)
53% reported that student loans delayed saving for a home
55% reported that they made sacrifices to non-essential items like entertainment and vacations to save for a home
67% found the mortgage application and approval process not difficult or easier than expected.
Only 6% of millennial buyers had a previous mortgage application denied. The number one reason was for debt-to-income ratio, followed by low credit score.
46% of buyers had student loan debt. The median amount was $27,000.
55% used a conventional loan, 27% used an FHA loan, and 10% used a VA loan.

After analyzing their demographics and buying habits, it is clear that millennial buyers have become a powerful force in the housing market. As it turns out, avocado toast is not preventing millennials from buying homes.

Source: https://www.nar.realtor/research-and-statistics/research-reports/home-buyer-and-seller-generational-trends

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Under 35 Homeownership Rate Increases

by I Am Benchmark

The Rate of Homeownership has increased from 34.3% to 35.3% from first Quarter 2017 to Second Quarter 2017 for those under 35 years of age, according to a report from the United States Census Bureau.

While popular media seems to portray Millennials as a generation of renters, a whitepaper from First American lists six reasons why the number of Millennials becoming homeowners will continue to rise. Here is a quick summary.

They Are The Most Educated Generation

First American says,

“Our model shows that, all other factors being equal, the likelihood of homeownership increases by 3 percent for those that earn a bachelor’s degree over those with a high school degree. The likelihood of homeownership jumps another 3 percent for those that earn a graduate degree.”

To summarize, more education results in a higher rate of homeownership. Since Millennials are the most educated generation in the United States, we should expect to see the rate of homeownership for this group increase over time.

Marriage And Homeownership – Happy Together

As a generation known for delaying life milestones, many are marrying later. With the homeownership rate being 30% higher for married couples over non-married homes (according to First American), we can expect to see the rate of homeownership increase over time for Millennials.

Parents Prefer To Own

According to First American‘s research:

“The homeownership rate is 1.7% higher for households with one or two children compared to households with no children, and it is 5.4 percent higher for households with three or more children.”

As Millennials mature, there may be an increase not only in marriage, but also in producing the next generation. According to First American‘s latest report, this could also result in a bump in homeownership for this up and coming group.

Economics And Income

First American‘s study ties recent gains in income growth and a stronger economy to an increased willingness and ability to buy a home. While this is referring to the entire labor pool, it includes Millennials.

Benchmark.us Sessions

This is hardly proof, but it is interesting to note that ages 25-34 is the largest age group represented in visitors to Benchmark.us so far in 2017, at 32% of all sessions being within this age range.

The Future Is Here

The generations are aging, expectations are changing, and the time is right for the Millennials to take on the American Dream of Homeownership and to establish familial wealth.

Millionaire Tells Millennials To Buy A Home

by I Am Benchmark

CNN recently ran an article explaining why self-made millionaire David Bach has said,

“The fact is, you aren’t really in the game of building wealth until you own some real estate.”

In his book, “The Automatic Millionaire” Bach writes,

“As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing. Or you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!“

We have touched on this in the past. (see Buying Still Cheaper Than Renting, Renting vs Buying a Home and Accumulating Wealth, and Homeowner Average Net Worth 3,600% Higher Than Renter)

Bach has told CNBC that buying a home is “an escalator to wealth“.

“If millennials don’t buy a home, their chances of actually having any wealth in this country are little to none. The average homeowner to this day is 38 times wealthier than a renter.”

In regards to the idea of a starter home, Bach says,

“Oftentimes, buying your first home means you’re not buying your dream home. You’re just getting into the market.”

The Logic

Following David Bach’s logic is simple. We all have to live somewhere. We have to pay either rent or a mortgage. Over time, a mortgage can increase your net wealth over renting.

While buying your dream home would be nice, Bach says that the key is to just get into the market, and admits that your first home may not be your last.

The Takeaway

On average, family wealth of homeowners is dramatically higher than that of renters, and this divide has seen growth over time. David Bach, best-selling author and self-made millionaire, advises homeownership as the surest path to building wealth.

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