COVID-19 Could Further Delay Millennial Homeownership for Years

It will take nine months to recoup a single month of expenses taken out of savings

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Jun 08, 2020, 06:00 ET

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 Tax^a	Monthly Savings (10% of Income)^b	Monthly Expenses^c	Months of Saving to Recoup 1 Month of Expenses	Months of Saving to Recoup 6 Months of Expenses	Median Listing Price^d	Years of Saving Needed for Additional 10% Down Payment^e
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.

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