Young homebuyers are back in the game, but it's going to take some prodding to put their names on a deed.
A survey by TD Bank found that, as of mid-2015, 60% of Millennials (ages 24-35) were planning to buy a home over the next two years. To say that this is an improvement from even a year before is understating the matter. When The LendingTree conducted a similar survey in September 2014, 67.4% said a higher salary or income was necessary before they could buy a home, 28.7% wanted to pay off student loans before becoming homeowners and 25.7% said homeownership would only be a possibility after they spent time and money on other things, such as traveling, investing and philanthropic missions. Even that was being optimistic.
“Underemployment and low salaries combined with high student debt and uncertainty about the future are a reality that is affecting the, housing market,” LendingTree founder and chief executive Doug Lebda said at the time. “The demand is there, but until this age group sees higher salaries, lower debt levels, and feelings of settlement, Millennial participation in the housing market will be slow.”
They clearly aren't ready, as evidenced by the 21.2% of Millennials who did not know their current credit score, the 11% who said they have never even checked their credit score and the 9.5% who did not have or maintain a savings account. Even early last year, when a survey by The Principal found that just 38% of Millennials owned their own homes, that same survey found that many were paying for regular expenses such as their cell phone bill (12%), car insurance (8%), health insurance (7%) and rent (7%) with help from their parents. That could be because 20% of respondents listed student debt as their largest budget item, with the average student loan debt that year hovering around $33,000.
“Most Millennials we spoke with haven’t done the math to determine what level of savings they should be targeting, but all agreed that they weren’t doing enough.” said Jerry Patterson, senior vice president of retirement and investor services at The Principal.
However, Joe O’Boyle, a retirement coach for Voya Financial Advisors, has witnessed with his Generation X and Millennial clients in the entertainment, legal and medical industries in Beverly Hills, Calif., the impossible is possible with the right planning. As he notes, even Millennials with good jobs, who can afford to live on their own, take help offered by their parents and live at home so that they can save money for their first home.
O'Boyle mentions a Millennial client in Los Angeles who is an attorney and came out of school with no student loans or credit card debt. With her parents' blessing, she lived at home for three years after she finished law school and saved over $200,000 to make a 20% down payment on a home in a neighborhood near her office.
“She said that 'there were some small sacrifices' to her social life that came with living with her folks, but that it allowed her to buy her first home and it was definitely worth it,” O'Boyle said. “The tradeoff for many Millennials living at home is giving up some of their independence today for greater financial freedom tomorrow.”
Of course, not every young potential homebuyer has that option. Ray Rodriguez, Regional Mortgage Sales Manager at TD Bank, notes that 70% of the optimistic Millennials from his survey still feel they have a ways to go before they can save up for a down payment. However, 91% of Millennials say they're in a better financial position today because they have a plan in place.
Melinda Kibler, a certified financial planner with Palisades Hudson Financial Group’s Fort Lauderdale, Fla., notes that the standing rule for saving is to first overcome your complacency -- yes, you actually need to save money for a house. Next, create a budget by going through your monthly or even annual expenses and making cuts.
“Without a formal budget, you’ll be too lax and won’t reach your goals,” Kibler says. “Once you’ve set your goals and built a budget to reach them, you’re on your way.”
From there, you should reduce debt, starting with loans carrying the highest interest rate first. That's usually credit-card debt, so try to shift that over to a card with a 0% interest offer. Once that's paid down you can start attacking your student loans and build up your savings from there. This is easier when you have a job, but a Bankrate survey of Millennials taken around the same time as TD Bank's housing survey indicated that 32% of employed Millennials report higher job security relative to a year ago. As a result, 30% of Millennials say their savings are in better shape now than a year ago, while 33% of Millennials report their overall financial situation is better than 12 months ago.
They aren't home yet, but with a little work and help from the economy, they're getting closer.
“While Millennials are doing pretty well financially,” says Greg McBride, Bankrate’s chief financial analyst, “their net worth is being held back because they aren’t as invested as older adults in the stock and housing markets.”
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.