According to the U.S. Bureau of the Census, homeownership in Connecticut was 66.1 percent in 2017. Yet, only 14 percent of these homeowners were younger than 35. Unfortunately, millennials face more barriers to homeownership than older generations. Why do more young people choose to rent versus buy a home?
Factors Affecting Homeownership
According to Urban Institute, a non-profit research organization, the rate of homeownership among US millennials is about 8 percent lower than Generation Xers and Baby Boomers at the same age. Some factors that have impacted this homeownership gap include:
- Getting married later in life
- Higher student loan debt
- Increased rent-to-income ratio
- Having children later in life
- Greater racial diversity
Other important factors to consider include parental homeownership and where you live. If your parents are homeowners, chances of being a homeowner increases by 9 percent. Also, home prices vary greatly depending on geographic location.
Correlation Between Income & Rent
According to Bankrate, millennials who live in more expensive areas of the country are likely to have higher incomes. However, this often leads to higher monthly rent payments and consequently, less money to save for a down payment on a house.
Urban Institute reports that 49 percent of individuals 18 – 34 pay more than 30 percent of their income for rent.
When trying to figure out if you can afford to buy a house, you should not pay more than 2.5 times your gross income; this can deter millennials who face debt or have lower paying jobs. Keep in mind beyond your mortgage payment, you also have to include property taxes, real estate fees and home repairs in your investment.
Future Planning for Millennials
How long do you plan to spend in the home? If you likely won’t be staying in the same place for the next 5 to 10 years, renting can be more cost-effective than homebuying. Many millennials are still establishing careers and may be more open to relocation than older individuals. However, if you are settled in one place and can afford to buy a house in your millennial years, buying now allows more time for the property to increase in value.
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