That much-coveted group of consumers known as Millennials are not fully taking advantage of the best conditions for purchasing a home in years, a result of moderating home prices and historically low mortgage rates.
The homeownership rate for Millennial adults under 35 remains at record lows, despite a still recovering economy and those crucial low rates.
A new report from Trulia finds that buying a home is 23 percent cheaper than renting nationwide for millennials — “and now is the best time to buy since 2012 when interest rates were a tad lower.”
Trulia’s Rent vs. Buy Report has normally assumed a 30-year fixed rate mortgage with a 20 percent down payment for households moving every seven years. With these assumptions, buying is 36 percent cheaper than renting on a national basis, based on September home prices, for all adults. That’s the best differential since 2012 when it was 38 percent cheaper to buy than rent. Trulie says that buying is also cheaper than renting in each of the nation’s 100 largest metros.
However, when using the Census’ 2014 American Community Survey and a new Trulia consumer poll, the site found that the outlook is different for young Millennial households (ages 25-34), who tend to move every five years and can only afford up to a 10 percent down payment.
To compare the costs of owning and renting for young home buyers, Trulia also assumed a 3.85 percent mortgage rate on a 30-year fixed-rate loan, itemized federal tax deductions and a 25 percent tax bracket. Buying is not only 23 percent cheaper than renting nationally for Millennials, it is also cheaper than renting in 98 of the nation’s top 100 markets, Trulia said.
But personal choices aside, here are the current economic conditions that influence today’s market. Nationally, home price growth has outpaced rent growth since 2012. That favors the rent side of the buy vs. rent equation. However, interest rates have returned to near historic lows, now at about 3.85%, after climbing to 4% or higher in 2013 and 2014. In October 2012, rates were about 3.4% for a 30-year-fixed rate mortgage. In that year, young households found that it was 28% cheaper to buy than rent.