Millennials face tough obstacles to buying a home
After living with his mother, Richard Caughey is closing on his first home, a Chelsea waterfront condominium with high ceilings that costs under $230,000. There’s just one catch: At less than 300 square feet, the unit at 305 Microlofts is smaller than most hotel rooms.
But Caughey, a 28-year-old school teacher who looked at homes for nearly a year, found few other options in the Boston area for first-time buyers like himself. “It’s hard to find an entry-level home,” said Caughey.
Members of the millennial generation, most in their 20s and 30s now, are wading into the real estate market, chasing the same dream of homeownership as their parents and grandparents. But weighed down by debt — particularly student loans — paying sky-high rents that make it difficult to save, and facing limited housing stock that is pushing prices to record levels in some communities, many are finding only frustration.
So, should they give up hope? Not necessarily. But for many millennials, becoming homeowners will require time, planning, patience, and, as Caughey shows, compromises.
“They may not exactly find what they want, where they want,” said Rich Hornblower, a realtor with Coldwell Banker Residential Mortgage in the Back Bay.
Homeownership is viewed as a key step in adulthood and a way to build wealth, but it is a step that has become harder for millennials to take. Homeownership rates for those under 35 have dropped steadily in recent years, according to the US Census, from 39 percent in the second quarter of 2009 to 34.8 percent this year.
It’s not that younger adults aren’t interested in buying a home, said Thomas Callahan, the executive director of the Massachusetts Affordable Housing Alliance, a Dorchester nonprofit. Nearly 40 percent of the participants in the alliance’s homeownership classes are millennials. “There’s really strong homeownership aspirations,” he said.
For young adults, getting from aspiration to reality should begin with getting a handle on debt, lenders and real estate agents say. Most millennials are not only carrying student loans — a Harvard University study found that average amount of student debt for renters 25 to 34 years old was more than $30,000 — but also obligations from credit cards and car loans.
If it makes financial sense, they should consolidate their student loan debt, and get a lower interest rate, lenders recommend. Groups such as Roxbury-based Urban Edge, a community development organization, offers college loan counseling sessions.
First-time buyers should also make sure credit scores are at least 660 to 680, which can qualify them for state-sponsored homebuying assistance such as MassHousing Mortgage, which has low down payments and doesn’t require mortgage insurance.
Sometimes it’s worth postponing home buying for six months or a year to pay down debts and fix credit problems, said Philip Ganz, a senior loan officer at Fairway Independent Mortgage Corp. in Boston. It can save a homebuyer thousands of dollars over the life of a 30-year mortgage.
“Sometimes, ‘no’ is the best answer, or ‘not yet,’ ” Ganz said.
He also recommends that first-time buyers get financial paperwork organized and talk to several lenders to find the best rates and understand what they’re preapproved to spend. Two years of tax returns, two years of W-2 forms, and two months of bank statements and pay stubs are a good start, said Ganz.
But it isn’t just mortgage payments that millennials should worry about, realtors and lenders said. Since many will end up buying condominiums, they should make sure they read condo documents before finalizing their purchases.
Condo associations usually collect monthly fees to cover the cost of insurance, maintenance, and amenities in the building, which can add hundreds of dollars a month to mortgage payments. Condo associations may also have restrictions on renting properties, which can become an issue if buyers plan to eventually move to a bigger place and keep their unit as an investment property, Ganz said.
“Look at bylaws, look at what am I joining here, what am I giving up,” Ganz said. “You spend a lot of time looking at colleges, that’s four years. This is 30 years.”
Millennials also should expect to spend a lot of time looking for a home, as tight supplies and high prices make it tough to gain a foothold in the Greater Boston real estate market. While Boston neighborhoods such as South End and the Seaport offer trendy restaurants and quick commutes to work, the prices are probably out of reach for many. The median price of a condominium in the South End, for example, was $765,000 in the second quarter of this year.
Hornblower, the Back Bay real estate agent, said he is taking young, first-time buyers to communities such as East Boston, Quincy, Malden, and Roslindale, which are reachable by public transportation, but more budget-friendly. The median home price in Quincy in July was $388,500, the median condo price $280,000.
Kevin Saba, the developer of 305 Microlofts@commoncove, said he is trying to meet the demand of younger buyers and testing whether micro units, which have primarily been built for rental markets, can provide an entry in homeownership. Demand so far has been brisk, Saba said, and four of nine units that came on the market a few weeks ago with a starting price of about $200,000, are already under contract.
“We consider this a laboratory,” he said.