First Time Homebuyers Battle Unaffordability

Buying your first home can be terrifying. On top of it with consistent inflation and new taxes people who are looking to buy are wondering if they’ll be able to afford their mortgage after a few years in. But it isn’t just the concern for the very near future that is staving off first time homebuyers. All of these issues have been reported to have an effect on people deciding to buy, or not to buy:

• Limited market of starter homes
• Home prices rising 
• Banks having greater restrictions on lending
• High unemployment among younger generation
• View of debt is changing

Limited Market of Starter Homes

Young people who are looking to buy their first home often find themselves pitted against the low inventory of starter homes. But what happened to all of these starter homes?? Well, there was a giant window of opportunity for those who were financially stable during the market crash in 2008-2009 and investors took advantage! Many people purchased starter homes at unbelievably low prices during the recession and they haven’t sold. 

These people have taken up as landlords and aren’t intending to let go of their investment any time soon. Everywhere first time home buyers are finding themselves pressured into houses larges than they need on land they don’t want. 

Home Prices Rising

Home prices, like taxes, minimum wages, and the economy as a whole are rising. This means that if you’re planning on setting a 15% down payment savings goal it is just going to keep getting higher. A seemingly unreachable goal is discouraging. Home prices that keep rising are one of the many factors keeping young people in rental properties. 

If new home buyers are competing against existing homeowners for new properties they don’t stand a chance. They don’t have tens of thousands of dollars built up in equity on a property to sell. They have to start from scratch and this is one more level of discouragement. 

There is a lot of talk among the younger group about renting well into their forties while buying home cash closer to retirement. There is also a lot of discussion among millennials to wait for another dive in the housing market. Although this is a common topic of discussion, this younger generation seems pretty serious about waiting and doesn’t mind renting.

Unemployment is rising in Hot Market Areas

One of the hottest markets is also one of the hardest for first time home buyers because of unaffordability, that’s right we’re taking about California, the Golden State. First time homebuyers in the California market have a series of obstacles that are slowly spreading into other states also. 

While California is the toughest market for first time homebuyers the majority of this struggle can be associated to the high unemployment rate for ages 25-34. This is a prime age for most people looking to buy their first home. 

Unable to take that iconic step in adulthood of being handed their first set of house keys, what is a young person to do?

Cost of Living is at an All Time High

Back to the insane market of California, cost of living is nearly enough to drive even a rent payment out of most budgets. Homes cost a lot, however when compared to income homes are become nearly unaffordable. But, when you add in the final factor of utilities and basic living expenses for the area, the housing market will end up killing itself. People are earning more than ever however their paychecks are leaving their banks faster too. 

When affordability for basic cost of living becomes an issue, people often put the option of home buying out of their mind. 

Changing View of Debt

Millennials are hosting a different view of debt and for good reason. Keep in mind these are the kids who were just graduating high school or hitting the job market during the crash of 2009. Although they saw houses and gas at some of its lowest prices in recent history they know that low prices are temporary. After the crash these adults have grown up understanding that job markets, interest rates, income, and the value of any asset is just as fluid as the economy. 

The younger generation that is ready to buy a house now is suspicious of a good market and not financially able to handle a hot market. Odds are they are saving for a hefty down payment rather than taking advantage of first time home buyer assistance programs or using assets they already have as collateral. It gives them not only a greater sense of security that they can live on less than their income while saving but also assurance that they can handle a mortgage. As an added bonus this negative view of debt is giving a lot more opportunity for homebuyers who are ready and have saved. 

How to Break the Renters Cycle?

Clearly, the solution that millennials have chosen to take is the savings approach. To wait out the market and save fiercely towards a down payment seems to be the only choice for many first time homebuyers. As part of this solution, they are scoping out the cheapest rental options. 

This is one of the reasons why we’re seeing an increase in alternate housing options. From tiny homes to permanent resident RV’s millennials are getting really creative with how they can trim their budget now to save for later.