June 18, 2019
For Millenials, the Housing Market Now Looks Much Different Than It Used To
By Vance Albitz, CFP®

Mortgage rates recently dropped below 4% for the first time since early 2018, adding to the likelihood of a revival in the housing market going into the summer. Lower rates to borrow mean a much friendlier monthly mortgage payment. This could be tough for new buyers hoping to capitalize on a slump in home prices.

Rising housing costs and mounting student debt have led millennials to buy different types of homes in different types of locations than their parents did. Millennials are buying under different circumstances, too, often waiting longer, buying before marriage, or living with their parents to save cash so they don’t have to wait years for homeownership. 

Why is the housing market so different for millennials compared to the one their parents and grandparents faced? To start, according to the website Student Loan Hero, data shows that housing prices have far outpaced wage growth over the past several decades. In 1960, the median home value in the U.S. was $11,900, which is the equivalent of around $98,000 in today’s dollars, and in 2000, it rose to over $170,000. As of April 2018, the median home value has ballooned to over $210,000, according to Zillow. Adjusting for inflation, that’s a 114% increase since 1960. Bottom line: houses now are much more expensive than in the past, even after adjusting for inflation, and household incomes have not kept up with this increase in price.

Student debt is another factor this generation of new home buyers is saddled with. Some 70% of recent college graduates finish school with an average of $29,800 in debt to repay. No wonder so many college graduates are putting off buying.

For the Millennials who have bought a home, one in three tapped into a retirement account to do so, and two out of three say they have regrets about the purchase. When too much income goes to a mortgage payment, homeowners become house poor; a situation where no money remains for lifestyle after all monthly house expenses.

So, what can a young adult do to buy a home and still be happy? There are five (obvious) options:
1. Rent, save, wait, and buy later.
2. Purchase a desirable home in a less desirable area.
3. Purchase a less desirable home in a desirable area.
4. Get some assistance in purchasing the home.
5. Make more money.

Of course, these sound simple in theory but are difficult in execution. Who knows what the housing market has in store over the next decade. Low rates will likely allow more Millennials to borrow money, but it will also push the prices of homes into much higher price ranges.

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.