Most millennials dream of becoming homeowners one day. But a recent report shows that a majority of them haven't saved anywhere near the amount necessary for a down payment, putting their homeownership dreams far into the future—and possibly out of reach.
About 80% of the younger generation hope to buy a home, according to the study from rental website Apartment List. But 36% of these wannabe homeowners plan to wait more than five years to take the plunge into homeownership.
That's because home prices keep rising and most millennials simply don't have the money for an onerous down payment. More than two-thirds of respondents don't even have $1,000 in down payment savings.
Apartment List surveyed 24,000 millennial renters, born between 1982 and 2004, for the report. It was conducted from October 2016 through April 2017.
The percentage of millennials planning to wait at least a half-decade spiked this year. In 2016, only 27% said they planned to wait more than five years. In 2015, the figure was 23%.
And in the latest survey, 67% believe it will take them at least three years to become homeowners while only 16% believe they'll close on a home within two years.
"Millennials' plans to purchase a home are being pushed further and further into the future," says Apartment List data analyst Chris Salviati, one of the authors of the report. "That could have serious impacts on their long-term financial stability."
Decades to save up for a down payment
In the priciest parts of the country, it might take aspiring homeowners two decades—or more—to come up with a 20% down payment.
Take San Jose, CA. Young buyers are expected to need at least 24 years to come up with 20% for a condo in the metro area. Twenty-four years!
The grim reality of sizable down payments isn't much better in the metros of Austin, TX, and Los Angeles, where millennials will need nearly 21 years to save. The calculations include home price, income, and savings growth projections.
"A lot of college-educated millennials are still carrying a lot of student debt," Salviati says. "To move to some of the best-paying jobs, millennials have to live in some of the most expensive cities. And throughout the country, increases in home prices are outpacing wage growth."
When the hurdle of an initial down payment was reduced to 10%, just 1 in 3 millennials said they could come up with the needed down payment in five years or less.
However, it's worth noting that many younger and first-time buyers put down considerably less than 20% or even 10%. Certain Federal Housing Administration–insured loans require only a 3.5% down payment.
Why are millennials waiting to buy?
About 72% of aspiring millennial buyers said they're waiting because they can't afford to buy; 45% said they weren't ready to settle down yet; and 36% said they're waiting to be married first.
Coming up with the down payment was the biggest obstacle, at 53%, followed by monthly payments (at 36%) and low credit scores (at 29%).
"They’ll continue renting longer into adulthood than we’ve seen in previous generations," Salviati says. They might buy smaller homes or "migrate to areas where prices are more affordable."