The elusive American Dream for millenials

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The elusive American Dream for millenials
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Homeownership as a worthy investment has been called into question in the aftermath of the housing crash, with everyone from Suze Orman to James Altucher wondering whether a home of your own is still an important part of the American Dream.

But if it does make sense to buy a home, it certainly looks like there's never been a better time. Trulia reports that owning is cheaper than renting by 35 percent, nationally. The reason is a combination of housing prices that are still well off their highs and interest rates that are still near historic lows, even after a recent uptick.

Yet educated 20- and 30-somethings, usually the drivers of growth in homeownership, are less likely to be owners than previous generations, and the long-term benefits of cheap entry-level homes seem poised to accrue to investors rather than to young people.

The Consumer Financial Protection Bureau reported in May that U.S. homeownership was being hindered by about the nation's $1 trillion student loan debt. Uncertainty about the job market isn't helping, either.

An analysis by USA Today of Census Bureau data found that between 2005 and 2011, 25- to 34-year-olds experienced the largest drop in homeownership of any age group.

Some pundits attribute this to a long-term shift in attitudes about homeownership, but that's probably not the case. A December, 2012, Trulia survey found that 93 percent of millennial renters plan to buy a home, at some point.

With the job market recovering and more recent grads landing full-time jobs, young people are slowly starting to look more ownership-ready-but hesitation remains.

(Read more: Credit cuts out would-be homebuyers )

Jed Kolko, chief economist at Trulia.com, said the slowdown in homebuying among young people is "about necessity"-driven by lack of funds for a down payment and job uncertainty.

Alison Rogers, a real estate agent and author of "Diary of a Real Estate Rookie," added that for young people, homeownership often isn't compatible with career goals. "If your job wants to move you and you can't move, there might be a career penalty to being stuck."

Psychological obstacles could also be a factor.

"Young homeowners were among the hardest hit during the housing bust," said Svenja Gudell, director of economic research at real estate portal Zillow (NASDAQ:Z). "They accumulated a great amount of negative equity. That shock has rippled through to potential homebuyers because they saw their slightly older friends go through the homebuying process in 2005 and 2006, and many of them are still underwater."

(Read more: A new wave of US mortgage trouble threatens )

But all that aside, if you think you might be ready to buy, now's probably the time. Procrastination could leave young people entering the housing market in a less affordable environment, with most FOMC participants expecting interest rates to rise in 2015.

"If you're in the market, it's a great time to buy, especially because mortgage rates are right around 4.2 percent-that's extremely low," Gudell said. "And if you can lock that in for the next 30 years, that's fantastic. They're only going up from here."

Still, by conventional personal finance standards, most young people aren't in a position to buy. Personal finance guru Dave Ramsey advises that people not buy a home until they're debt-free and have a fully funded emergency fund-which for many recent grads might mean a decade or more. But looking at where prices are right now, rising rents might, ironically, leave them less-positioned to build an emergency fund than a mortgage would.

So here are some ideas for millennials thinking about homeownership, and their parents:

Think low-end. The only sure benefits of homeownership come from monthly savings compared with renting and the long-term accumulation of equity. In general, the best housing investment will be the one with the lowest monthly costs.

According to the National Association of Home Builders, the median price paid by a first-time homebuyer was $147,000 in 2011-the lowest it had been since 2003. For an Federal Housing Administration loan, that would require a down payment of a little more than $5,000.

Go to parents. Parental help with down payments on starter homes can often be a tax- consequence-free source of funds. Kolko at Trulia said that the biggest barrier to homeownership for young people is the lack of a down payment.

If your parents have the means, this is an easy place to get help. Each parent can give their kids-and their spouse if they are married-up to $14,000 a year without having to pay a gift tax. If you're ever planning to give your kid money, now's the time. The FHA allows borrowers to pay their entire down payments out of gifted funds.

Don't co-sign a mortgage. If your kid has steady employment and a credit card he uses responsibly and perhaps a student loan he's current on, he should be able to qualify for a house within his price range as long as he has money for a down payment. If he needs a co-signer, he's probably not ready to own a home.

(Read more: Robert Shiller on housing: Don't trust momentum )

Can your parents be your emergency fund? It's not ideal, Kolko said, but it's something to consider when assessing whether you can safely buy a home: If you lose your job or experience some other financial crisis, do you have parents who can help you stay current on the mortgage?

-By Zac Bissonnette, Special to CNBC.com. Follow him on Twitter@ZacBissonnette



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