Millennials Greatly Underestimate How Much They Need For a Down Payment
Expectations vs. Reality Gap
The Expectations vs. Reality Gap is huge when it come to millennials desire to own a home.
In a nationwide survey of nearly 7,000 prospective homebuyers, Point2 found that 74% of the Millennials who are interested in purchasing a home would like to do so in the next 12 months. However, 88% of respondents between 25 and 40 years old have significantly less in savings than the average national down payment amount, which is $62,600. Moreover, 14% of the Millennials surveyed stated that they hadn’t managed to set aside anything at all, meaning that the desire to buy a home might be in conflict with Gen Y’s budgetary realities.
Time Needed to Save a Down Payment
Click on the above link for an interactive graph of cities.
Assuming a saving rate of 8% and a 20% down payment, in Austin it would take 11.8 years to save a down payment, Chicago, 9.6 years, Denver 12.8 years, Los Angeles 25 years, San Francisco 18.3 years.
- Most Millennials tend to greatly underestimate the amount of money they will need for a down payment.
- The national average down payment is about $62,000, but 40% of Millennials expect it to be less than $10,000. What’s more, 61% of young people have less than $10,000 in savings. Of those, 14% have no savings at all.
- The average savings rate in the last decade was 8%. And, although personal savings went through the roof in April (reaching 33.7%) one month of extraordinary budgeting may not move the needle.
- Considering savings rates, median incomes and median home prices, the time needed to save for a 20% down payment in the 100 largest U.S. cities varies significantly: from 10 years in Los Angeles and around nine years in Long Beach and Oakland, CA to a little more than two years in cities such as Buffalo, NY, Cleveland and Toledo, OH and Pittsburgh, PA.
- Perhaps unsurprisingly, the only large U.S. city where Millennials could save for a down payment in less than two years was Detroit, which makes this market the most attainable.
I somehow doubt that Detroit, Pittsburgh, and Toledo rank high on the dream list of cities for millennials to live in.