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Mortgage rates are at near record levels, as many millennials reach the age of 30 – the age at which many people traditionally become homeowners. Still, according to analysts, it is unlikely that low rates will raise millennium ownership rates, which are about 8% lower than previous generations.
Here is what has been done for the millennial generation and why home ownership is essential to creating wealth, at a time when this generation is already lagging behind its predecessors. Although there is no official definition, Generation Y is generally considered a person born between 1981 and 1996.
Current conditions of the housing market
Interest rates for a 30-year fixed rate mortgage declined sharply last week to 3.6%, for fear of an economic downturn. Current rates are more than one point lower than they were last November.
Suppose you're thinking of buying a $ 300,000 home with a 30-year mortgage in the fall, but you're sticking. If you were to buy the same house now, lowering the interest rate could reduce your monthly payments by $ 160 a month and save you over $ 60,000 over the life of the loan.
"The conditions are very favorable [to buy a home]Said Greg McBride, an economist at Bankrate.com. In addition to low interest rates, "the job market is the best it has been".
But there are not many affordable homes on the market. Older Americans do not "move" to larger homes as they did in the past. Investors have bought many of the smaller homes that would have been affordable for first-time home buyers. And developers are building more apartments for rent than condos for sale.
Even though there were a lot of houses to choose from, many millennials would struggle to save enough money to buy one. What's holding them back? Student debt and the high cost of housing.
Student debt weighs on the ability of the millennial generation to save and make mortgage payments. With university costs rising, the average student loan balance for a millennial borrower is $ 34,500, according to the Experian Consumer Credit Evaluation Agency. It also determines if a lender will approve a loan from the borrower.
But even though millions of millennia have not struggled against the cost of university borrowing, incomes have not kept up with rising housing costs.
If a person with a median income saved 10% of their earnings, it would now take 5.7 years to save enough to make a 20% down payment on a median home, or 1.5 years more than 1988, according to the report. the real estate company Zillow.
And the rush is worse in high cost areas. In the San Francisco Bay Area, it can take up to 13 years more to save on a down payment than it was 30 years ago.
The good news: a 20% down payment is no longer needed to buy a home. Lenders and government programs offer a variety of other options to reduce down payments. Some of them come with additional mortgage insurance that will be added to the monthly payments, but these extra fees can be eliminated once 20% of the value of the home has been repaid.
How the Great Recession is still looming
In the aftermath of the financial crisis, banks tightened their lending requirements after being criticized for loaning loans too easily and contributing to the creation – and then the bursting – of the real estate bubble.
This means that the millennial generation, which generally has a lower credit score than other generations, needs a higher credit score to buy a home now than it did a decade ago. Millennials who have graduated from the Great Recession are also expected to have lower earnings in their lives than those who graduated in times of economic growth.
If millennials decide to buy a house, they must believe in two things: they will be financially stable enough to make the mortgage payments and a home will be a good long-term investment.
Economists do not anticipate a repeat of the 2008 housing crisis. However, millenarians could still be reluctant to become the first homebuyers, fearing an impending recession and a slowing housing market.
A survey conducted by Zillow found that most Millennials who can afford to buy a home are happy with the move, although many regret the mortgage process.
Jeff Tucker, an economist at Zillow, suggests that the millennial generation must take its time in the process.
"The best thing to do is to look for a mortgage rate and conditions," Tucker said. "See what options are out there and make the lenders compete for your business."
The long-term consequences of not buying a house
The longer a person delays in buying a home, the more they will pay for a home and the more likely they will be to have mortgage debt later in life.
A study by the Urban Institute, a Washington-based think-tank, showed that people who bought their homes between the ages of 25 and 34 (the millennials are now) had $ 135,000 more in their homes. 60 years old. people who bought their first home after the age of 45.
The bottom line: "The delay [in buying a house] will not only affect [millennials’] satisfaction of the present life. This could have a longer-term effect on their wealth with age, "said Jung Hyun Choi, research associate at the Urban Institute.
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