December 15th, 2014
Although many millennials expect to own a home in the near future, a large number of them will have to search outside of their current locations to find an affordable property. This was one finding from Trulia’s latest Price and Rent Monitor reports, which revealed a phenomenon that has been coined the “millennial mismatch.”
“Millennials can afford markets where they don’t live, but they can’t afford many of the markets where they do live,” said Jed Kolko, Trulia chief economist. “Many millennials who hope to buy someday will be priced out of the market where they live now.”
Austin, Texas, has the highest population of millennials, which Trulia designated as consumers age 20 to 34, among the 100 largest metro areas. However, it is also one of the least affordable markets. In fact, both the average and median home prices for Austin hit record highs for the month of October, according to data from the Austin Board of Realtors.
“For example, this month’s results show that it costs a typical homeowner $23,000 more to buy a home than one year ago,” said Austin Board of Realtors 2014 President Bill Evans. “For some Austinites, that kind of price increase could mean looking at homes smaller in size, further outside the Austin area or not being able to afford to buy a home at all.”
Evans went on to say this indicates affordability will be a key housing issue going into 2015.
What options are there for millennial homebuyers?
Kolko said the affordability dilemma in markets with high populations of millennials presents this generation with a decision: Should they stay and continue renting or move and purchase a home? Per the Rent Monitor, the former option does not seem feasible, as rents went up 6.1 percent year over year in November.
Additionally, a report from Capital Economics supported the claim that there are affordability issues for renters though it acknowledged renting could become more affordable in the future when interest rates climb. This indicates millennials who want to buy a home may want to do so soon while borrowing terms are favorable.
In fact, the latest Primary Mortgage Market Survey from Freddie Mac revealed the average interest rate for a 30-year fixed mortgage remained under 4 percent for the week ending Dec. 11, and potential millennial homebuyers may see this as a reason to branch out to more affordable markets while rates remain around historical lows.