What are the mortgage rates and how are they calculated? The complete guide
Basics of mortgage fees: Key factors explained
Many young people feel crushed when they think about their ability to buy a home, but that doesn’t mean they are giving up on their dreams.
The average age of first-time home buyers rose to an all-time high of 38 last year. According to the National Association of Realtors, first-time home buyers share has sunk to a record low of 24% in a market where the baby boomers are capable of paying in cash.
In this reality, I feel that young people are jealous. More than six 10th Generation Z and millennial non-homeowners said they were jealous of the friends who bought the house, according to a new BMO survey. Despite their desires, 61% of non-operating owners said they had less confidence in owning them than they were at the peak of the Covid-19 pandemic, and over half said they felt they had missed their opportunity.
There’s no wonder why. According to Realtor.com’s monthly housing market trends report, thanks to mortgage rates, high home prices and home prices, Americans need to make around 70% more than they did six years ago.
Paul Dilda, head of BMO’s US Consumer Strategy, said current economic and market uncertainties have not helped reduce the difficulties in the home buying process. With relatively high interest rates, sustained inflation and increased housing costs, he has created what he calls a “complete storm” for first-time buyers.
“At other times it was probably easy. Lower inflation, lower housing costs, lower rates made it easier, and perhaps people just transitioned.
But now he said that if you want to own a home, it’s more important than ever to have a solid plan.
To buy a home at a national median price of $431,250, Realtor.com estimates that households need to make around $114,000 each year. It assumes that a 30-year fixed mortgage, a 20% down payment, and the traditional wisdom that buyers should not spend more than 30% of their total income on the home.
Some young people feel that homeownership is not included in their cards, while others have gained financial assistance from relatives to make that big purchase. Others ignore the odds, such as relocating retirements, co-purchases, and mortgages, and are considering unconventional ways to make it happen.
What about young people who buy homes?
Annakate Nottonson, 24, and Kaylynn St. Peters, 28, are among a small number of people who bought their homes in their early 20s. They both consider their purchases as “starter homes.”
Nottonson works in technology consulting and as a fitness trainer, but says that her overall annual income is under $100,000. Her family helped her go to college, but she bought her own house this year. She bought a two-bedroom, two-bath house in North Carolina for $395,000, and paid a 3% down payment and a $10,000 grant from a loan officer. She paid between $7,000 and $10,000 for the closure fee.
“When you cut 3%, you’re not getting the best deal. That’s just a fact,” Notonson said. “But at the end of the day, if you calculate the numbers, you can see that my mortgage payments I had with my roommate are still lower than what I was paying for in rent, and that’s heading towards me and this asset.”
St. Peters bought a one-bedroom, one-bath house in Illinois in 2019 for $120,000. Her grandfather co-signed for the mortgage and helped with a 20% down payment.
She’s not alone. Of the BMOs surveyed, 60% of Gen Z and 57% of millennials who bought the home said they couldn’t have done it without family support.
“If I hadn’t had any family, I think I would have just been ignorant,” St. Peters said. “Other generations of Z people say, ‘Well, I don’t have that money. It seems really intimidating. I don’t have the business of buying a house.”
Other ways youth can plan to achieve homeownership
Those who are not helping relatives are considering creative alternative paths to buying a home, the report found. Approximately 57% of Gen Z and 54% of Millennials say they buy with friends and family.
Gen Z is also considering mortgages for retirement, with 45% of future buyers planning to pull away from the 401(k) for down payments.
Young people are also willing to sacrifice their place and buy homes that are not ready to achieve homeownership. More than six in ten people can buy Fixer Uppers, and more than half are willing to move to another state or country to buy a home, the survey found.
Another recent study by property management company Evernest ranks Minnesota as the most desirable state for young people who buy real estate, with 50.8% of people under the age of 35 owning a home there.
Utah and West Virginia also ranked high on the list, providing the highest average income for young adults and cheapest homes for sale, respectively.
What are the things that young people do not buy?
However, home purchase, It’s not for everyone.
According to BMO research, the attention of homeowners can focus elsewhere.
Of those with children, 57% said they prioritized education and childcare payments. At 54%, most millennials reported that they believe savings for retirement are more important. Half of Gen Z said they were more focused on car savings.
Other young Americans are waiting for their borrowing costs to go down. Over two-thirds of Gen Z and Millennials support a decline in mortgage rates.
Also, buying a starter home is a common way to achieve homeownership, but 66% of Z and 61% of millennial renters found that buying one in a few years to upgrade to a larger home “no longer” in a BMO survey. Instead, they want to buy a home that can stay for a long time..
Storms, wildfires and floods are also nervous about buying a home. The survey says 65% of Z and 55% of millennials are concerned about climate risk factors, and that it will affect where they live.
And some may want to spend their money on other efforts.
“Homeownership is a huge expense and ‘Are you doing this because that’s what I want? Or was it what I was told?’ said Jack Howard, director of Money Wellness at Ally Financial. “If you want to travel around the world, the ownership of the home may not be.”
Reach Rachel Barber at rbarber@usatoday.com Follow her at x @rachelbarber_
