First-time homebuyers were hit hardest by recessionDate posted: 5/29/14 11:15:00 AM
The unemployment rate for millennials has dropped from its peak of 14 percent in 2010 to around 9 percent, but that's still higher than other age groups, according to The Washington Post.
Not surprisingly, only 34.1 percent of adults aged 25 to 29 owned a home in the U.S in 2013. The Census Bureau reported that number was 40.6 percent in 2007, showing a gradual decline of homeownership among young adults.
Rick Sharga, executive vice president of Auction.com, told the Post that young adults graduating from college around the time of the Great Recession were the hardest hit by the economic downturn. He said many young adults are struggling to find jobs, and those who are routinely have to deal with low wages or part-time work.
"People with student loan debt are much less likely to become buyers, in part because of the [federal government's] new ability-to-repay regulations that set a hard cap on borrowers' debt-to-income ratio at 43 percent," Sharga said. "Young adults with relatively low wages and high levels of student loan debt won't qualify for a loan."
Another reason young buyers remain on the sidelines
But it's not all about finding the right job to pay for a home. Many housing experts believe first-time buyers face major pitfalls when it comes to finding proper financing.
"One of the biggest issues keeping first-time buyers out of the market is the difficulty in obtaining a mortgage," Anthony Hsieh, founder, chairman and chief executive of LoanDepot.com, told the Post. "More than 90 percent of all loans today have support from the federal government, compared to 40 percent of all loans in 2003. This means that there's a lack of creativity and a lack of selection of loan programs that could help first-time buyers."
Despite rent going up in many areas around the country, young buyers simply can't warrant a home purchase. It's troubling because Zillow reported renters spent 30 percent of their incomes on rent in the first quarter of 2014, and that figure is much more in high-cost cities such as New York, San Francisco and Los Angeles.
"The pendulum has shifted from fast-and-loose to too-tight mortgage lending standards, and at the same time the economy is not conducive for young renters to become buyers," Nela Richardson, chief economist for Redfin, told the Post. "Labor force participation among young people is lower than normal and even those that are working are hurt because median income has stagnated while prices have risen."
Choosing to rent versus buy
The Federal Reserve Bank of New York recently conducted a survey of 867 homeowners and 344 renters. The Reserve Bank found a large portion of renters plan to move in the next three years, but many don't plan on buying a home.
While 63 percent of renters believe they will move from their current residence in the next three years, only 33 percent of those renters believe they will be purchasing a home. Meanwhile, just 22 percent of homeowners plan to move in the next three years, but three-fourths of those respondents believe they will be purchasing another home when making a move.
The survey asked renters with less than a 60 percent chance of buying a home why they believe they will rent again in the next three years rather than buy, and more often than not, respondents said it was due to a lack of savings or too much debt. Nearly 56 percent of respondents said they had too much debt, while more than 52 percent said they didn't make enough money. More than four of 10 respondents said their credit score wasn't good enough to buy a home.
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