Houses on Hold: How Young Professionals Struggle to Buy

Research shows student debt, high rents, and job prospects delay ownership

The popular narrative about “Millennials,” the generation born after 1980, is that they shun traditional homeownership for more urban living and are perfectly content renting. But is this a true preference or a product of financial circumstances? Research shows their preferences might not be as singular as we may think, and that financial barriers and job prospects can play a strong role in the delay of ownership.

National data has indicated that the desire for the “American Dream” of homeownership is still alive and well among young professionals. According to the Demand Institute’s 2013 Housing and Community Survey, which polled more than 1,000 households aged 18 to 29 about their current living situation, 75% responded that they believe ownership is an important long-term goal, and 60% said they plan to buy. In fact, 24% of those polled already owned a home. As far as where they want those homes to be, 48% said they would prefer a suburban location for their next home.

At the local level, New Hampshire young professionals aren’t overly keen on city living, either. According to Housing Needs in New Hampshire, a study commissioned by New Hampshire Housing and performed by the New Hampshire Center for Public Policy Studies and Applied Economic Research, young professionals in New Hampshire showed a preference for rural living—areas where images of single-family homes come to mind. So with the desire for homeownership still strong, why is there a delay in entering the market?

Currently, low vacancy rates (the latest data indicate only 2.5% of two-bedrooms and only 2.7% of all rental units are vacant) mean property owners can command higher rents. New Hampshire Housing’s 2014 Residential Rental Cost Survey indicated the median gross rent for a two-bedroom apartment was $1,108. These higher rents hinder young renters’ ability to save for a downpayment. Data show that to amass a 20% downpayment for a median-priced home (the amount required to avoid the extra cost of private mortgage insurance) in five years, renters would need to save about $730 per month.

Chart comparing rental cost versus ownership costs

Complicating the path to saving for a home is student debt. Housing Needs in New Hampshire found that 75% of New Hampshire college graduates carry some sort of debt, with the average being about $32,900. This average is the highest in the country. The young professionals interviewed said carrying this debt is a barrier to buying a home due to the high debt to income ratios that result.

While New Hampshire’s economy is continuing to recover from the effects of the recession, young professionals are entering a job market with lower wages, both in terms of dollars and value. Housing Needs in New Hampshire found that the jobs recovered since the recession have lower average wages than the ones that were lost. The wages people are currently earning are also worth less now. Although today’s median income of $64,230 is higher than the peak median income in 2008, when adjusted for inflation this amount is actually worth less than that peak median income in 2008. In other words, New Hampshire workers have not recovered the buying power that was lost during the recession.

Median Household Income in 2013 Dollars

It is also worth noting that for many recent college graduates who are just beginning their career, the state median income may be substantially higher than what they are making, meaning this effect is compounded for them. Job availability is also a concern; while they showed a preference for rural living, they also expressed that rural living may not be as viable an option due to the lack of jobs in those areas of the state.

So what are Granite State young professionals doing to manage housing costs? Housing Needs in New Hampshire found that young professionals do a variety of things to save money on housing, whether that is having a roommate, co-owning houses, or renting or owning far from where they work so they have more affordable options (“drive until you can afford it”).

“To ensure the vibrancy of New Hampshire and its workforce, it’s important that we continue to work to recruit and retain young professionals in our state,” said Kate Luczko, Executive Director of Stay Work Play, an organization dedicated to promoting New Hampshire as a favorable place for young professionals and recent graduates to live and work. “Given our mission and its essential ‘Stay’ piece, affordable and desirable housing plays a critical role in the efforts at positioning New Hampshire for a successful future. If affordable rental and ownership options are limited, our younger workface faces complex decisions about where to live, work and build their lives.”

While it is clear that this generation still aspires to homeownership, a slow start to their careers, combined with high rents and student debt mean their path to a home of their own may be slower and more difficult.

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