Rick Bisson“Inventory is at an all time low.”

It’s been professed by every newspaper, blog and economic report. America’s shortage of homes for sale is spiking home prices and testing the patience of ready and able buyers. This inventory dilemma is actually having a slowing effect on the nation’s economy. It is also driving up rent, and hindering millennials who are already strapped with student loan debt.

A recent rental analysis showed that in 2017, median rent increased 3.1 percent with much higher increases experienced in metropolitan areas. Workers ages 22 to 34 in the Los Angeles, San Francisco, New York and Miami metropolitan areas can expect to pay up to 45 percent of their income toward rent. In San Francisco, it’s not uncommon for three roommates to pay $1,200 per person monthly for a second-floor apartment in a 14-unit building.

It shouldn’t come as a surprise that the highest percentage of people who cannot save for future purchases, such as homes, live on the West Coast. The West Coast also had the largest percentage of people stressed about their rent, followed by the East Coast.

A majority of millennials — roughly 80 percent — express interest in acquiring a home of their own. However, one of the most prominent reasons hindering these individuals from buying a house is unprecedentedly high rents: It has become extremely difficult to save enough for a down payment.

The stress revolving rent points back to historically low inventory. There simply aren’t enough homes available for sale. Multiple offer situations are resulting in skyrocketing home prices and it’s not just the first-time home-buyers who can’t compete anymore. Most buyers have been left wondering just how much over the asking-price their offer has to be to be accepted.

In addition to rising rent and home prices, student debt balances continue to grow. In 2018, Americans are more burdened by student loan debt than ever. The average student loan debt for graduates of the Class of 2016 was $37,172, up 6 percent from the previous year. Americans owe more than $1.48 trillion in student loan debt, spread out among about 44 million borrowers. The average monthly student loan payment for ages 20 to 30 years is $351 and the delinquency rate is 11.2 percent (90-plus days delinquent or in default).

In addition to rising rent, this increase in student loan debt may play a role in the decrease in down payments for first-time home-buyers. The typical down payment for first-timers fell to 5 percent in 2017. It was 6 percent in 2016. Over half of first-time home-buyers said it took a year or more to save for a down payment.

The triple threat of rising student loan debt, rising rent and skyrocketing home prices has left millennials at a crossroads. The result: a renting population struggling to achieve homeownership. Rather than striking out on their own, many millennials are simply failing to launch, with record numbers living with their parents or forced to shell out much of their income on rent.

However, not all millennials have had to set their dreams of home ownership aside and with the rise of millennial home-buyers comes a shift in homeownership trends. Those that are able to buy are largely purchasing in “surban” areas — or places with a mix of suburban and urban features.

These more affordable communities offer pedestrian-friendly retail areas, quick access to open green spaces and popular public schools. Millennials are also demanding energy-efficient amenities inside and outside their home. In addition to being environmentally-friendly, green features can also reduce heating and cooling costs. In a market where home prices are rising, decreasing monthly utility bills has become top-of-mind.

While the prospect of home ownership can seem daunting to those suffering from rising rent and student loan debt, not all hope is lost. There are a number of loans available to those that cannot afford to put 20 percent down on a conventional loan. FHA loans typically come with competitive interest rates, smaller down payments and lower closing costs than conventional loans.

Individuals with a credit score of 580 or higher could be eligible for a mortgage with a down payment as low as 3.5 percent of the purchase price. The U.S. Department of Veterans Affairs (VA) helps active-duty military members, veterans and surviving spouses buy homes. VA loans come with competitive interest rates and require no down payment. Individuals aren’t required to pay for private mortgage insurance, and a minimum credit score isn’t needed for eligibility. The U.S. Department of Agriculture also has a home-buyer assistance program. The USDA guarantees the home loan. There may be no down payment required, and the loan payments are fixed.

If you, of someone you know, aspires to home ownership, talk with your trusted, expert Realtor and local lender. You may be surprised to learn that purchasing a home might actually be cheaper than renting. Or you may discover some ways that you can strengthen your financial situation in the hopes of purchasing a home one day.

 

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