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Home Buyers Need 7.2 Years to Save Down Payments – 1.5 Years More Than in 1988

  • Buyers these days need 7.2 years to save a 20 percent down payment on the median valued home.
  • That’s up from 5.7 years in 1988, when the median household income was $28,100.
  • The time is shorter than 1988 in some metros, including Austin, Texas (almost 2 years shorter), Indianapolis, (almost 8 months shorter), San Antonio (5 months shorter), and Dallas-Fort Worth (less than two months shorter).

Ever in the cross hairs of the generation wars, millennials are much maligned for being behind. Behind in starting families, behind in saving for retirement, behind in owning homes—this last item at a time when mortgage rates are still relatively low and monthly mortgage payments at that national level are historically below that of their parents’ generations, despite record home values. So what gives for the failure to launch?

Turns out those record home values have outstripped incomes at such a pace that it would take much longer for a first-time buyer now to save for a down payment, even if their savings rates matched that of buyers decades ago. To see this, let’s do a little hypothetical back-of-the-envelope math.

Let’s say your parents saved 10 percent of their income in 1988, 30 years ago. At that time, that would have been $234 a month (the median household income at the time was $28,100). The median home value in the U.S. that year was $79,400. Keeping things simple, that would have meant a bit over five-and-a-half years (5.7) of saving for a 20 percent down payment.

Using the national median incomes and home values of today, buyers these days need an extra year and a half, for 7.2 years total, to save a 20 percent down payment on the median valued home. Despite the booming job markets of the past decade, buyers saving down payments now – mostly first-time buyers, 61 percent of whom are millennials, according to the Zillow Group Consumer Housing Trends Report 2018 – need even more time to accomplish what previous generations did. First-time buyers say that 46 percent of their down payments come from savings, compared with 35 percent for repeat buyers, the report found.

In San Jose, Calif., buyers would need a whopping additional 13.3 years. Los Angeles, San Francisco, and San Diego are not much friendlier, requiring an additional 9.5, 8.5, and 7.3 years, respectively, compared to three decades ago. It’s not just California, however: Down payments in the Pacific Northwest are similarly out of reach, requiring an extra 6 years for millennials compared with buyers 30 years ago in both Seattle and Portland.

In a handful of major metropolitan areas, the time it would take to save a down payment with a constant savings rate of 10 percent is actually shorter than it was 30 years ago; these are areas where the much-maligned millennial generation is better able to get this stuff together. These metros include Austin, Texas (almost 2 years shorter), Indianapolis, (almost 8 months shorter), San Antonio (5 months shorter), and Dallas-Fort Worth (less than two months shorter).

This simple back-of-the-envelope result shows that millennials deserve sympathy regarding their ability to save a down payment.

Real-world realities only compound the issue: Historically, the typical U.S. household would spend only 25.8 percent of its income on rent. Currently, market rate rents take up 28.4 percent of median household income.

In addition, the cost of a four-year degree at a public college has increased 213 percent over the past 30 years. Over the past three decades, average annual increases in published tuition and fees (in 2017 dollars) ranged from $1,550 (from 1987-88 to 1997-98) to $2,690 (from 2007-08 to 2017-18) at public four-year institutions and from $5,860 (from 1987-88 to 1997-98) to $7,220 (from 2007-08 to 2017-18) in the private nonprofit four-year sector.

The upshot is that higher rent burdens and higher student loan payments drive down the savings rate so that, in reality, we would expect it to take even longer than we’ve estimated for the typical millennial to save for that down payment. No wonder they need help.

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