A few months back, I noted that Millennials, those born between 1980 and 1995, purchased the most real estate between July 2012 and June 2013.
It sounded like good news, a positive trend that should bode well for the housing market on into the future. After all, these first-time buyers are critical to the ongoing health of the real estate market.
But there’s a problem. Nearly half of would-be Millennial home buyers today don’t have enough money saved up to purchase a home at today’s prices.
For that reason, nearly half plan to ask mom and dad for the required down payment money (and some will even ask their grandparents), according to a new survey from Trulia.
At the same time, 37% said they plan to work a second job in order to save the necessary cash, while 22% said they would turn to the state or federal government for help to achieve the American dream of homeownership.
Down Payments Are an Issue for All Ages
Either way, the message is clear – down payments continue to be an issue for prospective home buyers.
Last week, I pointed out that nearly half of recent home purchases required mortgage insurance, so it’s not just the young that are struggling with down payments.
Interestingly, Millennials aren’t even trying to buy McMansions, but rather modestly priced homes. In fact, 68% indicated that they were looking to buy a home under $200,000, which you think wouldn’t break the bank.
But that would still require a down payment of $40,000 to get down to the magic 80% LTV threshold, which would allow these home buyers to avoid private mortgage insurance and a higher mortgage rate.
But how can we expect young generations to set aside such a large chunk of money when there are so many other pressing costs, like monthly iPhone service plans and Starbucks.
Sure, I probably sound like a grumpy, no-fun Gen X’er, but upon seeing this top 10 list I lost hope in humanity.
Top 10 Expenses Millennials Would NEVER Give Up to Save for a Down Payment
3. Cable TV
4. Netflix subscription
5. Vacation money
6. Eating out
7. Shopping for clothes
8. Organic food purchases
9. Gym membership
10. Morning latte/cappuccino
Don’t Worry, Trulia Is Giving Away Money
Luckily, Millennials, or should I say one Millennial (or someone of any age for that matter) won’t need to give up their favorite things because Trulia is giving away $50,000 via a new contest. Wells Fargo also has a contest going on now.
Don’t fret. If you aren’t the lucky winner, you can still get a mortgage with next to nothing down, which while extremely flexible, kind of sends the wrong message to the youth and the rest of America.
You don’t really need to save because there’s always going to be a home loan program out there that eliminates the need for a down payment. Heck, the FHA still only requires 3.5% down and the money can come in the form of a gift.
I’m not trying to get rid of no- and low-down payment options, because they obviously provide tremendous value to many responsible buyers nationwide, but I do wonder if it sets us up for yet another housing rollercoaster while disincentivizing the need to save.
A lack of home equity (and zero down financing) was clearly the problem during the last crisis, and we don’t seem to be addressing it much differently this time around.
Worse yet, today’s homeowner will know they can walk away from bad investments in the future with little recourse or consequence.