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Homeownership is a top priority for millennials, but many say they can’t afford it

Young millennial couple doing their laundryImage: Young millennial couple doing their laundry
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The American dream is eluding millennials.

Despite reports that millennials are killing the housing market, buying a home is a top priority for 72% of millennials, according to a new Bank of America report. But many of these young adults say they simply can’t afford it.

A combination of crippling student loan debt and the high cost of rent in many big cities around the country could be a reason. The report found that 44% of renters feel as if they can’t buy a home because haven’t saved enough money for a down payment.

Yet many millennials still aspire to become homeowners, putting the purchase of a home above getting married and having children, according to the report.

What’s the background?

For millennials, the hurdles to buying a home appear to be growing — especially when factoring in the student loan crisis.

In the United States, student loan debt has climbed to a record high of $1.53 trillion, a number that has tripled over the last 12 years since the Federal Reserve began collecting student loan data in 2006.

The student loan crisis affects more than 44 million student borrowers, who graduated with an average debt of $37,172 in 2016. That’s quite a bit more debt than new college graduates had 15 years ago. In 2003, the average student borrower graduated with a debt of $18,271, which is the equivalent of $25,384 in today’s dollars when adjusted for inflation.

Paying more for college could be affecting millennials’ ability to save up for a down payment on a new home. The Bank of America report found that 10% of millennial renters have not yet purchased a home because of student debt.

To make matters worse, millennials came of age during the Great Recession and witnessed the housing market collapse firsthand. Because of this, reports show they’re more hesitant to buy a home until they feel financially secure.

This comes at a time when millennials are paying a greater percentage of their income on rent than baby boomers and Gen Xers did as young adults. Earlier this year, a RentCafe study found that millennials shell out an average of $92,600 in total rent payments between the ages of 22 and 30, or about 45% of their income. That’s significantly more than what baby boomers (36%) and Gen Xers (41%) spent on rent relative to their income when they were the same age.

Why does this matter?

Economists are taking note. Some experts are concerned that millennials’ delay in buying homes could hurt the housing market, and by extension, the overall economy.

But others suggest millennials are simply late bloomers who will begin buying homes in the next few years.

According to Freddie Mac’s 2018 March Insight report, even though millennials are slower than other generations to reach major milestones like homeownership, they should soon begin entering the housing market at a higher rate — eventually adding between 19 million and 21 million additional net new households by 2025 (with the help of Generation Z).

What can you do?

 According to Bank of America’s report, many millennials don’t feel as if they’re financially prepared to take on the commitment of homebuying yet. If you find yourself in this situation, we have a few suggestions to put you in a better place to buy a home.

  1. It all starts with saving money. If you’re saving for a home, you may have to make some difficult decisions about how you spend money. The first step will be starting a budget and sticking to it. Challenge a friend or partner to do it with you so you can hold each other accountable.
  2. Develop a plan for paying off debt. Paying off debt can seem like a huge task, but it’s easier when you break it down. Start by assessing the amount you owe, then dive into the details and make a repayment plan.
  3. Consider housing alternatives. Though it isn’t possible for everyone, some people may be able to save on rent by looking for housing in a more affordable neighborhood, finding a roommate (or two) or even moving in with their parents for a short period of time.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.