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The Young and the Restless

March 25, 2024 | Posted in: Insights, Wealth Strategies

My recent blog, Unaffordable, focused on the ratio of the median home price to average household income which rose from 3.5 in 1985 to 5.8 today making homeownership increasingly unattainable for many. I recently came across data illustrating that this problem is particularly acute for younger people. The median home price of $417,000 requires a mortgage of $333,600 assuming the typical loan to value ratio of 80%. For a thirty year fixed rate loan, the monthly payment is $2,235.15, and taxes, utilities, and other costs bring the total monthly outlay to $3,690 on average. Average annual compensation for individuals in the 25-34 age bracket is $56,160 suggesting income of $112,320 or $9,360 per month for a young couple. Therefore, the $3,690 monthly housing cost represents 39% of gross income whereas financial planners recommend a maximum of 30%. Not only is the monthly carrying cost burdensome, but the required down payment of $83,400 is daunting. Lendingtree reports that 54% of Millennials receive down payment help from parents and other family members. Many of those who do not enjoy family support are becoming resigned to permanent status as renters which hinders upward economic mobility. In fact, a study by the Federal Reserve found that the average net worth of homeowners was forty times that of renters in 2019.