Missing ingredient for millennials: Down payment savings

AP

Short of savings and burdened by debt, America’s millennials are struggling to afford their first homes in the face of sharply higher prices in many of the most desirable cities.
Surveys show that most Americans under 35 lack adequate savings for down payments. The result is that many will likely be forced to delay home ownership and to absorb significant debt loads if they do eventually buy.
Steadily rising home values in recent years have eclipsed pay increases, making it especially difficult to buy in major growth areas for jobs, such as San Francisco, Denver and Seattle.
Nationally, 37 percent of millennial renters have saved nothing at all for a down payment, according to a survey of 30,000 renters being released on Sunday by Apartment List, a company specializing in rental home searches. At the same time, 79 percent of millennial renters say they aspire to own a home, illustrating a troublesome gap between expectations and financial realities.
Even those diligent enough to set aside money are still short the cash to buy a home.
Among larger metro areas, millennial renters who are saving have put aside an average of just $5,830. This marks less than one-fifth the savings needed for the typical 20 percent down payment on a starter home costing $175,000. The lack of savings raises doubts about whether the under-35 crowd will also delay marriage and children, said Andrew Woo, a data scientist at Apartment List.
One possibility— already evident in some markets— is that first-time buyers are making smaller down payments and paying mortgage insurance or slightly higher interest rates on mortgages. Excess housing debt roughly a decade ago inflated a housing bubble and then triggered a market crash that led to the worst economic downturn since the Great Depression more than 80 years ago.
“A lot of millennials are not saving enough for a 20 percent down payment for a home,” Woo said. “What does that do for our financial system — especially since we had the financial crisis less than 10 years ago? Are we willing to let homebuyers be highly leveraged like they were before?”
Millennials not only entered a job market still healing from the downturn but arrived with high student debt burdens, with averages approaching $30,000.