For millennials, homeownership is no longer the rite of passage into adulthood that it once was.
Call it a sign of the times. Facing crushing student loan and credit debt and a still-shaky job market, people under the age of 35 account for just 37% of homeowners in the U.S., down from 40% in 2007, according to Census data.
This is despite the fact that it is cheaper to buy a home than rent in just about every major U.S. metro.
“I think that for sure, there are people who are just never going to own,” says Brendon DeSimone, real estate expert for Zillow. “They either got nailed in the bad housing market or got their credit ruined or live paycheck to paycheck. There’s a whole new class of renters out there.”
While the statistics and data bear out the conventional wisdom that America is becoming a nation of renters, there are exceptions to every rule. Some young people have gone against the new norm and taken a gamble in the housing market anyway.
Whether that meant moving in with Mom and Dad for a few years or selling off their possessions in order to afford a downpayment, they've proven homebuying isn't quite as far-fetched as it may seem...for better or for worse.
Tired of throwing away money on rent
For Keondra Williams, 26, cutting a $1,200 check each month for her downtown Houston rental apartment was no problem. She landed a job as a pharmacist even before she graduated from Texas Southern University and is pulling in more than $100,000 a year. Renting quickly lost its appeal.
“I was just throwing away money and I didn’t have anything to show for it. I was also getting eaten up by [income] taxes,” says Williams. “I knew buying a home was my ultimate goal.”
She hadn’t saved much during college, so Williams decided to take a step back and move in with her parents for a couple of years while she squirreled away enough funds for a down payment.
That turned out to be the easy part of the house-hunting process.
“I was with my realtor for eight months, going from home to home to home and I never found anything I really liked,” she says. Eventually, her real estate agent convinced her to look at new home constructions going on in Spring, a suburb of Houston that’s a 15-minute drive from The Woodlands, which will soon be home to Exxon Mobil’s largest corporate campus.
After watching her parents contend with the growing pains of owning an older home, she was attracted to buying new. There would be fewer repairs to worry about and she could have a say in the home’s construction, from what kind of floors to put in to how big her bathroom was.
In January, she secured an FHA loan and put down $10,000 on a on a $250,000 two-story, four-bedroom home. It’s been less than a year, but she says she’s pleased with the move so far.
“This area is up and coming and I bought it for way cheaper than what it will be worth,” she says.
“The only regret I have is that … of course a lot of my friends live in the city and I do want to live closer to them. But their rent is the same as my mortgage payment.”
Still, Williams wasn’t aware of some of the additional costs associated with buying new. She was charged every time she requested a change to the builder’s plan. Solar panels and new granite in the kitchen each cost between $2,000 and $3,000. Landscaping work cost another $2,000, and when the builders installed the wrong brick in front of the home, she still had to pay them to replace it.
When all was said and done, though, it was worth it. “It’s just me by myself, and I knew I didn’t want to do a lot of fixing up,” she says. “I don’t have time for that.”
"I only see myself coming out on top."
Andrew Hou, 23, knew before he graduated from the University of Washington that he was ready to put down real roots in Seattle. His parents live an hour away and he was able to land a well-paying job as a software engineer at Amazon’s headquarters.
“With the currently low interest rates, and the market on the upswing, I was worried that waiting another year or two to purchase would [mean I couldn’t afford] the same amount of house I could buy right now,” says Hou.
To sweeten the deal, his brother was willing to move in as a renter, which would take the edge off a onthly mortgage payment.
Hou was always an aggressive saver, putting way 75% of his paycheck out of college for two years for a future down payment. He was fortunate enough to not have any student loans, and some stock he had purchased at age 15 had gone up 10-fold in value since then.
When all was said and done, he managed to save $50,000 by the time he started house hunting in August. It was a frustrating process.
“I actually made offers on two houses. The first one, I was outbid by 15% over asking and the second one, I got matched by a cash-bid,” he says. “Picking a home that you can imagine living in for the foreseeable future, then having it taken away from you, is incredibly frustrating.”
At last, a seller accepted his bid on a $475,000 2,060 square-foot, three-bedroom, two-bath home. He secured a 30-year fixed-rate loan from his credit union, which allowed him to put down just 10%.
“I can mount new cabinets, repaint anything I want, have dance parties, and cook smelly food,” he says. “Given the way the housing market in Seattle is looking right now, I only see myself coming out on top with my investment.”
Blinded by the housing bubble
Grayson Bell and his wife were 23-year-old newlyweds when they decided to buy a home at the end of 2006. It seemed like a good idea.
They were ready to take more control over their space and at the time “people were buying up homes left and right,” says Bell. “We wanted the freedom to make changes to our living space without having to pay a fee or penalty.”
Of course, the Raleigh, N.C., couple’s timing couldn’t have been worse. The housing bubble was nearing its peak and they had missed all the signs of the coming catastrophe.
“Mortgage lenders were practically giving aways loans to anyone with a paycheck,” Bell recalls. “Since we had recently graduated college, we didn’t have a down payment. We were able to finance the house 100%. I realize the problem with that now, but didn’t when I was younger.”
They settled on $167,000 home, shelling out $1,050 in mortgage payments each month.
When asked what his biggest regret has been, Bell says he’s been more disappointed in where he bought his home rather than when.
“Our biggest mistake was not vetting the neighborhood before we picked our house. We regret that decision to this day,” Says Bell. “Our neighborhood turned out to be filled with people that didn't care about their properties or other people's properties. Our lawn became the neighborhood's trash dump and the people around were just disrespectful.”
At the same time, the same people who had flooded the area at the height of the housing bubble were driven out by foreclosure after the 2008 crash. Most of the homes in an adjoining neighborhood went into foreclosure, and the area was overtaken by a wave of crime and gang-related activity. As a result, the value of the Bells’ house suffered a hit as well. They are hoping hoping to sell their home soon, but will be lucky to break even.
“We deal with constant crime and some gang related activity,” Bell says. “The neighborhood is not a place where we want to raise our son.”
“We knew we were in for a wild ride”
Brandon Johnson, 28, and his wife Lauren, 26, are only four months into their run as first-time homeowners, but so far so good, they say.
“We were big fans of renting, and we're hoping we equally enjoy the owning aspect,” says Johnson, who works for the government. “But if for some reason we don't, we put enough down that we should be able to sell the house at any time, without being underwater.”
Financially, they were in an excellent place when they decided they wanted to buy. They made a point to put away money each month for their future home. They had their eyes on property in a town about 10 miles outside Seattle. In order compete with higher bidders, they wanted to be sure they had enough for a 20% down payment.
They started out with just $5,000 in savings. By living strictly within their means and taking advantage of being a dual earner household with no children, Johnson and his wife managed to put away $100,000 over three years.
Money in place, the next challenge was finding a decent house that still met their $400,000 budget.
“It will be hard for Midwesterners to believe, but in Seattle $400,000 doesn't buy much,” Johnson says. “We felt like we did everything right, but when we watched a crappy 2-bedroom, 1-bath, 840-square-foot house sell in three days for $390,000, we knew we were in for a wild ride.”
Six months in, they finally caught a break, elbowing out another couple to land an 80-year-old home for $357,000. It turned out the other couple’s bid was higher but they could only put down 3%, vs. the Johnsons’ offer of 20%.
After property taxes and homeowners insurance and the $400 they earn by renting out their basement to a friend, their monthly outlay is $1,280.
As for whether they regret jumping into the housing market now, Johnson says simply, “The jury is still out.”
“I kind of hate how much pride there is in owning a home,” he says. “We are totally happy being homeowners, but it by no means makes me feel like I'm somehow more fiscally responsible than my fellow renters.”
“If I could do it again, I probably wouldn’t.”
Josh Patterson was barely out of high school when he decided to take advantage of the housing crash in 2007 and snap up a cheap foreclosure.
“The amount I could make reselling the house after the market recovered, combined with the first time home buyer tax credit, made it a very easy decision,” says Patterson, who was 19 at the time.
Patterson, now 26, took out a few thousand dollars from his savings and sold his car to put down a deposit on a $67,000 vacant home in McDonough, Ga. It was a fixer-upper (looters had made off with the A/C/heating system), but an FHA Rehab loan gave Patterson some wiggle room for repairs. In all, he wound up getting an $82,000 loan and paying $600 in monthly mortgage payments.
It was a smart investment on its face. He paid less than most renters did in his area and Patterson hoped the property’s value would double when the market turned around. In the meantime, he had a great place to live.
But within a year, he started to feel the pangs of regret.
“One year after purchasing the house I spent three months in Maine and three years after purchasing the house I moved to Phoenix [for work],” he says. “All would have been less stressful on my mind and budget had I been a renter instead of an owner.”
Today, he rents an apartment in Phoenix while still paying his mortgage in Georgia. He says he’d like to eventually sell, but the value hasn’t increased enough to be worth the trouble.
“After seeing both sides of the coin, I think I prefer renting to owning,” he says. “If I could do it all over again, I probably wouldn’t. I was too early in my career to make a long-term commitment to a certain area.”
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For millennials, homeownership is no longer the rite of passage into adulthood that it once was.