SEATTLE, – Today’s first-time homebuyer is older and more likely to be single than first-time homebuyers in the 1970s and 1980s, according to a new Zillow® analysisi.
Zillow’s study found that Americans are renting for an average of six years before buying their first homes. In the 1970s, they rented for an average of 2.6 years. They’re also spending a bigger chunk of their incomes to buy: In the 1970s, first-time homebuyers bought homes that cost about 1.7 times their annual income. Now they’re buying homes that cost 2.6 times their annual income.
Part of that can be attributed to the housing markets where millennials are moving: more expensive cities on the coasts, where there are growing job markets.
The average first-time homebuyer is about 33, at the front end of the millennial generation. Their median income is $54,340, which is about the same as what first-time homebuyers made in the 1970s, when adjusted for inflation.
In the late 1980s, 52 percent of first-time homebuyers were married. Today, only 40% were married.
“Millennials are delaying all kinds of major life decisions, like getting married and having kids, so it makes sense that they would also delay buying a home,” said Zillow Chief Economist Dr. Svenja Gudell. “We know millennials value home-ownership and want to buy. The next challenge will be figuring out how they can save for a down payment and qualify for a mortgage, especially while the rental market is so unaffordable all over the country. The last hurdle will be finding a home they like amidst very tight inventory, especially among starter homes.”
Paying for a mortgage is still affordable, while rent takes up more income than ever in most major metro areas, according to a Zillow® analysis of U.S. rental and mortgage affordabilityi in the second quarter of 2015.
Rental affordability worsened over the last year, while mortgage affordability stayed essentially the same. Renters in the U.S. can expect to put 30.2 percent of their monthly income toward rent – the highest percentage ever. Before the real estate bubble and bust, U.S. renters could expect to spend about 24.4 percent of their incomes on rent.
Buyers should expect to pay 15.1 percent of their income towards mortgage payments, which is still less than what they spent historically. From 1985 through 2000, homeowners spent about 21.3 percent of their monthly income on mortgage payments.
In Denver and four California metros, both renters and buyers can expect to pay more of their income towards either rent or mortgage payments than in pre-bubble years. In hot San Jose, renters and buyers should each plan to put about 42 percent of their incomes towards housing.
“Our research found that unaffordable rents are making it hard for people to save for a down payment and retirement, and that people whose rent is unaffordable are more likely to skip out on their own healthcare,” said Zillow Chief Economist Dr. Svenja Gudell. “There are good reasons to rent temporarily – when you move to a new city, for example – but from an affordability perspective, rents are crazy right now. If you can possibly come up with a down payment, then it’s a good time to buy a home and start putting your money toward a mortgage.”
Mortgage payments will continue to be affordable even if mortgage rates rise as expected. If rates reach six percent next year, home buyers can still expect to spend 30 percent or less of their income on mortgage payments in 265 out of 290 (91.4 percent) of the metros Zillow analyzed, and mortgage payments will be considered more affordable than in pre-bubble years in 72.1 percent of metros.
Rents, on the other hand, are already unaffordable compared to historic norms in 77 percent of metros, and with relatively stagnant wage growth, this likely won’t improve as rents keep climbing.
About Zillow
Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z), and headquartered in Seattle.
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