A recent survey indicates that Millennials are ready to shop for homes! According to Consumer's Reports, Americans are ready to shop again, but they're proceeding far more cautiously than they have in the past.
I recently had a conversation with some Millennials (aged 18-34) about the real estate market in West Michigan. One of the questions I was asked was if I thought it was ALWAYS a good idea to purchase a home? My answer was no. There are a variety of reasons why a home purchase may not be a wise decision including: a lack of stable employment, significant consumer debt or student loans and the lack of maturity necessary to undertake the responsibility of a home purchase.
However, with rental rates in West Michigan increasing by approximately 5-10% per annum, many are finding that it can be more expensive to rent a home than to own a similar dwelling.
Let's consider an example from a popular west side neighborhood where homes and condos retail for approximately $70,000 - $85,000 for a 2-3 bedroom starter home. The average house payment at current interest rates of approximately 4% and a 3.5% downpayment would be approximately $405 for a 30 year loan. This does not include insurance and taxes which could add an additional $250+. The adjusted housing payment would be approximately $650+.
A similar home in the neighborhood referrenced above, for RENT (if you can find one) would currently retail for $800 - $1,200 depending on location and ammenities.
The bottom line is this in my opinion...
If you are gainfully employed and do not have a staggering amount of student loans or consumer debt, purchasing a home is an option you should consider. Secondly, if you're ready to start building a financial future for yourself or your family, owning a home remains one of the best long term investments available. Here are some questions to ask to determine if a home purchase may make sense if you're in the Millennial Generation.
1. What are the rental options in my neighborhood? What is the average rent?
2. Is the neighborhood you're considering likely to be a good investment in the future?
3. What are the hidden costs of renting?
- Tax deductions for homeownership - not available for renters
- Any improvements you personally make to the dwelling benefit the landlord, not you.
- Condominium association dues - are these your responsibility or the landlords?
- No potential for equity gains or increasing the return on your financial investment as the housing market improves
4. Have you thoroughly researched the potential financial options to assist with your purchase?
- First time home buyer credits
- Lender approved negotiated assistance with home purchasing costs
- Tax credit programs for qualified home owners
- Mortgages with lower down payments or no down payments
The questions above are a good way to start a conversation around the decision to own or rent a home. Another important part of the process is to contact a knowledgeable Real Estate Broker who can help to successfully navigate through the complexities and help to ensure that the right investment is made.