Home ownership has reached a five-decade low, according to a recent report by the U.S. Census Bureau. This is due partially, the report says, to the fact that millennials have historically low ownership rates compared with other generations. Why aren’t more millennials willing to purchase a place to call home? Should they purchase homes or is it smarter for them to rent? GoodCall asked industry experts to weigh in on the trend of young professionals choosing to rent instead of buy. Here’s what the consumer-focused website discovered.
• Buying may be more advantageous than renting for millennials who may be thinking about future family plans, says Bill Golden, an independent real estate agent with RE/Max Metro Atlanta Cityside. “If you’re planning on expanding your family, and the market is attractive for buyers, it may make sense to stretch a bit and buy a home now that would be suitable for a growing family,” he says
• If not, Golden says you’re wasting money on rent and also guessing on the type of market you will encounter when you decide to enlarge your family and search for a house.
• If you’ve allocated a specific amount to spend each month, Golden explains that you’ll need to decide the best way to spend it. “Depending on where you are looking to live, that may mean renting a three-bedroom, two-bath house with a yard, or buying a one-bedroom condominium,” he says. If you have a dog, for example, you should consider whether you would prefer to just open the door and let him out into the yard, or if you want to go through the hassle of walking him on a leash every time he needs to go outside.
• For investment-minded millennials, Golden says they might consider whether their home should be one of their investments, or whether they’re throwing away money in rent that could be used for investing. “Of course, it’s also extremely important to remember that, in buying a home, you are building equity as time goes by, both by paying down on your mortgage, and hopefully, through appreciation of the property,” he says.
• While some millennials may not want to purchase a home, many simply are not able to because of debt. Robyn Gilson, coach for Financial Education and vice president of Customer Experience at U.S. Bank, says that lingering debt and financial worries play a critical role in the home-buying decision. “Despite millennials’ well-publicized low rate of homeownership, our index found 76 percent feel being able to save for a home remains important to achieving an ideal home life — but only 37 percent feel satisfied in their ability to save.”
• Gilson also says that any millennials who are thinking about purchasing a home will need to understand and then start building their credit score so they can qualify for a mortgage when the time comes.
• Perceived job security is another contributing factor, according to Matthew Carbray, certified financial planner and managing partner of Ridgeline Financial Partners LLC and Carbray Staunton Financial Partners in Avon, Conn. “And, financially speaking, one needs ample money for a down payment, pre-paid items at a closing like property taxes, and also insurance and renovations,” says Carbray.
• Even if you have a stable income, your home shouldn’t eat up all of your money. “If it would take every penny of your savings to make a down payment on a home, and you’re not certain of your ability to replenish that in the future, you may want to factor that into your decision,” Golden says. “There are many loan programs out there that can help first-time home buyers with down-payment assistance, or that don’t require a severed arm and leg to get a mortgage,” he adds. However, millennials should also consider their comfort level with the final estimate. Golden recommends getting pre-qualified for a mortgage. “That will enable you to make a more accurate comparison of what you can get for that money in a purchase versus a rental,” he says.
• So, how much should millennials feel comfortable paying? “I typically recommend that prospective buyers put down no less than 20 percent of the purchase price, not only to avoid triggering the private mortgage insurance requirement, but also to secure reduced interest rates and closing costs, smaller monthly payments and instant home equity,” says Laurie Samay, a certified financial planner and client service and portfolio manager with Palisades Hudson Financial Group in Scarsdale, N.Y.