SANTA CLARA, Calif.,
June 8, 2020 /PRNewswire/ -- With
unemployment at record highs, many people are being forced to dip
into their savings to cover everyday expenses and stay afloat. For
the average millennial, it will take nine months of saving to
recoup a single month's worth of expenses, which could delay their
goals of homeownership until long after coronavirus is under
control, according to a new analysis released today by
realtor.com®.
San Francisco and Nashville, Tenn., led the down payment delay
at 10 months to recoup a single month's worth of expenses, with
Seattle and Denver close behind at 9.8 months. All are
markets that are Millennial magnets which have above-average
incomes but also above-average housing costs and expenses.
"Millennials may largely escape the worst of COVID-19, but with
an unemployment rate of 13.4 percent, this age group is not immune
from the economic fallout. As they cobble together money for
expenses from unemployment benefits and side-hustles, many will
find that they need to dip into savings to cover necessities from
groceries to rent. This could delay their home purchase by years,"
said realtor.com® Chief Economist Danielle Hale. "Homeownership has already been
delayed for many millennials and the coronavirus could push the
timetable even further out for some."
The report found it would take the average millennial 53 months
-- over four years -- to recover that value back into their
savings, if they had no income for six months. The analysis assumes
a savings target of 10 percent of their take-home pay (the 20-year
national savings rate average was 6 percent, but recently spiked to
33 percent) and that household incomes will return to their
pre-COVID levels after the lockdown. It does not account for time
ramping back up to full employment or potential salary reductions,
which could further delay millennial homebuyer recovery.
For this analysis, the average millennial household expenses are
$3,770 per month, with a median
monthly household income of $4,240
after taxes. While COVID-19 has impacted people within all
generations, millennials are the largest generation in U.S. history
and make up the largest homebuying segment.
Adding to millennial home buyer challenges, some lenders are
tightening their lending criteria by requiring higher credit scores
and minimum down payments for some types of loans. Major banks have
recently changed their criteria for home lending by requiring
borrowers to secure 20 percent down payments, significantly higher
than the millennial median down payment of 8 percent. With a
national median listing price of $320,000 in April, a 20 percent down payment
would be $64,000.
According to the report, adding an additional 10 percent to a
homebuyer's downpayment would require an additional 6.5 years of
saving, on average.
"Most young buyers purchase a home with much less than a 20
percent down payment and while these loans are still technically
available, finding a lender willing to make one may be more
challenging. Rather than saving for the extra years needed to buy
into a pricey city, millennials could turn to suburbs or more
affordable metro areas," Hale noted.
Facing a higher cost of living, millennials living in urban
markets are likely to take the longest time to recover lost
savings.
For example, in San Francisco,
if a home buyer were to dip into their savings for six months, it
would take five years to recoup those losses. Additionally, with
major lenders increasing their minimum down payment requirement for
some loans to 20 percent, millennials in San Francisco who were aiming for a 10 percent
down payment would need to save for an additional 16 years to meet
that new lending criteria. See here for broader market analysis of
the toughest markets.
Top 10 Markets That Take the Longest to Recoup
Savings
Rank
|
County
|
Monthly
Median
Income
After
Taxa
|
Monthly
Savings
(10% of
Income)b
|
Monthly
Expensesc
|
Months of Saving
to Recoup 1 Month of Expenses
|
Months of Saving to
Recoup 6 Months of Expenses
|
Median Listing
Priced
|
Years of Saving
Needed for Additional 10% Down Paymente
|
1
|
San Francisco,
Calif.
|
$8,179
|
$818
|
$8,179
|
10.0
|
60
|
$1,590,000
|
16.2
|
2
|
Williamson, Tenn.
(Nashville)
|
$6,180
|
$618
|
$6,180
|
10.0
|
60
|
$685,000
|
9.2
|
3
|
King, Wash.
(Seattle)
|
$5,815
|
$582
|
$5,704
|
9.8
|
59
|
$725,000
|
10.4
|
4
|
Douglas, Colo.
(Denver)
|
$6,622
|
$662
|
$6,479
|
9.8
|
59
|
$642,000
|
8.1
|
5
|
Forsyth, Ga.
(Atlanta)
|
$6,679
|
$668
|
$6,428
|
9.6
|
58
|
$405,000
|
5.1
|
6
|
Ascension Parish, La.
(New Orleans)
|
$4,788
|
$479
|
$4,565
|
9.5
|
57
|
$278,000
|
4.8
|
7
|
Shelby, Ala.
(Birmingham)
|
$4,795
|
$479
|
$4,540
|
9.5
|
57
|
$346,000
|
6.0
|
8
|
Howard, Md.
(Baltimore)
|
$6,370
|
$637
|
$6,023
|
9.5
|
57
|
$600,000
|
7.8
|
9
|
Midland,
Texas
|
$4,707
|
$471
|
$4,445
|
9.4
|
57
|
$367,000
|
6.5
|
10
|
Pulaski, Ark. (Little
Rock)
|
$3,233
|
$323
|
$3,048
|
9.4
|
57
|
$215,000
|
5.5
|
Methodology
Millennials are defined here as the
population age 25-34.
Household incomes data for ages 25-34 comes from Claritas Pop
Facts Demographics 2020. Federal effective tax rates derived from
IRS 2017 data; state and local tax rates as of January 1, 2020 come from the Tax Foundation.
The national personal savings rate was 8.0 percent in February.
Here we applied an aggressive 10 percent savings rate, representing
driven homebuyers.
Monthly expense rates estimated from the Consumer Expenditures
Survey 2018 for ages 25-34 and by region of the country. The ratio
of income to expenses from that survey was applied to each county's
income figure to estimate its level of expenses. In rare cases (4
out of 593 counties), expense estimates were greater than income
after taxes by 1 to 4 percent. In those cases, expense rates were
capped to the level of income after taxes.
About realtor.com®
Realtor.com®
makes buying, selling and living in homes easier and more rewarding
for everyone. Realtor.com® pioneered the world of
digital real estate 20 years ago, and today through its website and
mobile apps is a trusted source for the information, tools and
professional expertise that help people move confidently through
every step of their home journey. Using proprietary data science
and machine learning
technology, realtor.com® pairs buyers and
sellers with local agents in their market, helping take the
guesswork out of buying and selling a home. For
professionals, realtor.com® is a trusted
provider of consumer connections and branding solutions that help
them succeed in today's on-demand world. Realtor.com® is
operated by News Corp [Nasdaq: NWS, NWSA] [ASX: NWS, NWSLV]
subsidiary Move, Inc. under a perpetual license from the National
Association of REALTORS®. For more information,
visit realtor.com®.
Media Contacts:
-
Cody Horvat,
cody.horvat@move.com
- Lexie
Holbert, lexie.puckett@move.com
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SOURCE realtor.com