Young Adults Delaying Home Ownership

Local young adults delaying homeownership

Angelia Davis, The Greenville News9:22 p.m. EDT July 20, 2014

Millennials Wes Lambert and his wife, Lexi, want to buy a home, but for now, they’re renting.

“With my wife being the only one to work and me being in grad school, we just haven’t been in the position to save a whole lot just yet,” said Wes, who just graduated from law school. “We’re hoping to get there.”

Others are also rooting for young adults like the Lamberts to achieve homeownership. That’s because first-time buyers are shrinking in number, real estate experts say.

In a normal market, first-time buyers make up about 40 percent of the home buyers, according to the National Association of Realtors. Their most recent data is 27 percent.

That’s worrisome because recent household growth has been among renters, according to Lawrence Yun, NAR chief economist.

“Unless a healthy portion of today’s 40 million renter households become homeowners, the housing market cannot grow much,” Yun said in a recent blog post.

Jeff Brown, TD Bank’s regional mortgage manager for the Carolinas, said first-time buyers drive the market because “before you buy your second home or your third house, you’ve got to buy your first one.”

“I think with the first time homebuyer markets being brisk, that allows the people who currently own a home to sell their home and move up,” he said. “I also think it helps the overall economy.”

Ultimately, the large millennial generation will make their presence felt in the owner-occupied market,” said Daniel McCue, research manager of the Joint Center for Housing Studies at Harvard University, “just as they already have in the rental market, where demand is strong, rents are rising, construction is robust, and property values increased by double digits for the fourth consecutive year in 2013.”

But for now, tight credit, student loan debt and an unemployment rate that is still higher than before the 2008 economic crash are some factors keeping millennials from buying their first homes, according to the Joint Center and industry experts.

Alese Smith, a 22-year-old personal trainer who moved to Greenville from upstate New York, said student loans are a big hindrance that she sees among people in her age group.

“As soon as they get out of school, they have a tremendous amount of debt. A lot of people end up going to live at home because they can’t even afford an apartment,” said Smith, who lives in a one-bedroom unit in The Carlyle.

For those who can afford an apartment, “It feels a little bit safer than buying a home,” she said. “It’s a little bit less of a commitment because we have a lot of commitment to pay off our student loans, other debts and just living.”

Maggie Aiken, a sales agent with Berkshire Hathaway HomeServices C. Dan Joyner Real Estate Co., said rather than a scarcity of first-time buyers, there’s a scarcity in the homes they can afford. She said more than 50 percent of her sales last year were first-time buyers.

“In my experience, there are a ton of first-time buyers out there and they are eager and excited,” Aiken said. But, she said, “There aren’t enough homes out there that kind of fit under that $200,000 first-time homebuyer price range.”

Home builders are responding to where the market demand exists, said Micheal Dey, executive vice president of the Home Builders Association of Greenville.

The demand currently exists more with move--up buyers and baby boomers buying or building their dream home, he said.

Dey said there are some homes being built in the first-time buyer price range, but with challenges.

“The price of land is pretty high, the ability to get the land zoned to make the economics work has gotten very difficult -- we’re seeing a good bit of ‘not in my backyard, anti-growth response in this market, and the cost to develop has exploded,” Dey said.

The average price of a newly constructed home in Greenville is $230,000. The first-time buyer price range is typically under $200,000.

Amanda Jones, executive vice president at Coldwell Banker Caine, said some first-time buyers are able to purchase at a higher price point, depending on their profession. Some rent until they can afford a much larger house, she said.

TD Bank rolled out its The Right Step mortgage program in the Carolinas in August. The program was started because of the need to increase the affordability for first-time buyers, Brown said.

Among the program’s highlights, he said, is its 3 percent down payment and its absence of mortgage insurance.

Julie Payne and her husband, Andy, can probably afford to buy now, but they have opted to rent a home in Greenville for a few years.

The couple just moved back to Greenville from Boston where Julie completed medical training at Boston University and Andy earned a doctor of design degree from Harvard.

Their decision was based partly because they’ve been out of the area for eight years.

“We didn’t exactly know our bearings any more as far as the neighborhoods, the schools ... everything has changed so much,” Julie said.

Another thing that weighed in the Paynes’ decision to rent, she said, was having friends buy houses during their medical training and being unable to “get out from underneath them when they wanted to move to where they were actually going to live.”

“I think it makes sense that anybody who’s watched their parents unable to sell houses and their friends unable to sell houses over the last 10 years is probably going to be less likely to buy,” Julie said.

Payne said she and Andy will rent until they eventually build.

“My husband is an architect. Obviously he’s going to have some very strong opinions about things when it comes to looking for a house,” she said.

“For example, it took us about a year to buy our first table. So we knew from a distance it was going to be difficult to make that kind of decision while doing the things we knew to do to graduate and finish our training jobs.”

Travis May and his fiancee, Lindsey Lawson, said renting now will help them make better decisions when they do decide to buy a home. They chose to live in Homestead at Hartness, a new Eastside neighborhood with new, lease-only single family homes.

The advantages, May said, include not having the worry of selling a home should something change in their careers or with the housing market. There’s also the plus of having amenities as renters that they likely wouldn’t have with the purchase of a typical starter home.

“I feel like it gives us the opportunity to make differences. If we want to go somewhere we can,” said May, who works in manufacturing.

Homestead offers a fitness center, a pool and “a lot of other things,” Lawson said, that they’d otherwise probably have to buy a home in the $500,000 range to have.

Lawson said she also likes not having the responsibility of upkeep on the home “which is huge.”

The biggest thing May and Lawson said they may be missing from homeownership is “building equity.”

Yun figures renters missed out on $41,000 by not buying three years ago when prices were at a low point.

As a renter, Lawson said she’s heard that “you’re throwing your money away” what seems like “a million times.”

“We don’t feel that way. We feel like this is giving us more options to think about what we want,” May said.

Then, added Lawson, a pharmacist, “I don’t ever want to buy a home because I feel like I have to.”

“We have a lot of friends that have bought and they don’t have the things we have. But at the same time, they feel like they’re building that equity,” she said.

“I guess we just don’t view it that way because they take on property taxes, homeowners insurance, and all these various things that we don’t worry about.”

Aiken, whose niche is the first-time buyer, said about 98 percent of the people who come to her wanting to rent end up buying.

“I think a lot of that has to do with the generation of people that kind of take the bull by the horns,” said Aiken, 27. “They want to get settled in Greenville. They see how much Greenville is growing and they want to start their roots here.”

Thomas Cheves, a sales agent at Coldwell Banker Caine, said rising prices and tight inventory can frustrate first-time buyers because the more desirable, correctly priced homes are moving very quickly … sometimes too quickly for the buyers to react or make a decision.

He said appraisal issues are also hampering buyers’ abilities to obtain financing.

“Current renters and prospective buyers need to understand that affordability is likely to continue to decline as interest rates rise and homes appreciate in value. If an individual or family knows they will only stay in the Greenville area for approximately a year, renting may be a good idea,” he said.

Cheves said those likely to remain in the area longer should take advantage of the low interest rates, buy a house and create equity.

“I forecast that the appreciation over a few years will outweigh the costs associated with buying and selling,” he said.