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Is it really harder for millennials to buy their first home?

housing market
Posted at 9:45 PM, Apr 03, 2024
and last updated 2024-04-04 08:21:31-04

DENVER — Housing is far less affordable now than when previous generations were buying their first homes, according to a new study from Realtyhop, using U.S. Census data.

The study uses "housing multiples" to make sure we're comparing apples to apples. A "housing multiple" is how many multiples of household income it would take to buy a home. For example, if the annual household income was $100,000 and the median price of a home was $300,000, the housing multiple would be three.

In 1970, the national median household income was $9,500 a year and the median price of a single-family house was $17,000, making the housing multiple 1.77. In 2022, the housing multiple was 3.04 — a 72% increase.

Colorado saw one of the biggest increases in the housing multiple between 1970 and 2022, up 137%. In 1970, the housing multiple was 1.8 compared to 4.49 in 2022. Early data for 2023 show it's catapulted to 5.84.

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Jeff Peshut, assistant professor of finance and director of real estate at Metropolitan State University Denver, agrees with the findings of the report but said it doesn't give the full picture. For instance, he said it doesn't take into account home size.

"Homes are much larger today than they were then," said Peshut.

In 1970, a single-family home averaged 1,500 square feet. Today, it's 2,500 square feet. And the average household is smaller now — 2.5 people versus 3.3 people per household in 1970.

"So because of that, the square foot per person has literally doubled from 500 square feet per person to almost 1,000 square feet per person," said Peshut.

So you are getting more bang for your buck now.

But there's still the price. The median price for a single-family home in the Denver metro is $550,000. Peshut said Coloradans can blame land use restrictions and zoning regulations for inflating the values of homes.

Peshut said the report doesn't consider that as home prices have gone up, mortgage rates have steadily gone down — until 2022 anyway. So the relative house payment hasn't changed much.

"The mortgage payment to the income has actually been at about the same level as it was in 1970," Peshut said.

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Tod Caviness
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The big hurdle to buying a first home is the down payment. According to the National Association of Realtors, the typical down payment for first-time homebuyers is 8%. For the median-priced home in the Denver metro, that's $44,000 cash up-front.

Peshut said in 1970, it took about 1,500 hours of work to save up for a down payment. Today, it takes 3,000 hours of work to save up for that down payment — twice as long.

So, why aren't millennials, by and large, able to save up that 44,000? They entered the workforce right before, during after the Great Recession and the job market was lousy. That delayed their career development, which delayed their ability to save money. And when their careers did get going, they dragged along a lot of student loan debt — between $33,000 and $42,000 per millennial, on average.

Peshut's advice to young people wanting to buy that first home? Be patient, save money and lobby your state and local governments to get those regulations and restrictions reduced.

Or maybe it's time to ask the question: Should home ownership still be the American dream?

Consider Switzerland. Only 36% of Swiss own their own homes, the lowest rate in the West and well below the 67% in the U.S. Yet, the Swiss have the sixth best quality of life in the world, are among the top-5 happiest people in the world, and some of the wealthiest. Homeownership isn't the only path to joy and money.

You may have more in common with the Swiss than you realize. They have a popular activity called beer hiking — hikes through the mountains that end at breweries. Then they go home to their rentals. Sound familiar?

Is it really harder for millennials to buy their first home?

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