Avocado toast has been pointed to as the cause of millennials not being able to afford a home. Photo: Asia Morris
Avocado toast has gotten a bad wrap as of late. While the cool and crunchy small plate veteran of many a coffee shop may be overpriced, is it really the reason why so many millennials are stuck on the sidelines when it comes to taking the plunge and purchasing a home?
A new survey published Friday by Apartment List, an online apartment locater service, asserts that homeownership aspirations are more affected by a gap between reality and expectations than by millennials’ affinity for avocado toast.
In short, the survey titled “American Dream Delayed” showed that while the overwhelming majority of millennials—those born between 1982 and 2004—want to eventually own a home or condo, most struggle with the obstacle of affordability. What’s more is the survey revealed a disconnect between market prices and the amount of funds the survey participants anticipated having to save for a down payment.
Of those that participated, 72 percent cited affordability as the primary obstacle with 45 percent stating that they were not ready to settle down and 36 percent saying they were putting off a home purchase until after marriage. Among those renters who stated they do not intend to buy, nearly 60 percent said they enjoy the flexibility of renting according to the survey results, but 56 percent of renters also cited cost.
The survey was carried out between October 2016 and April 2017 and showed that based on the current rate of monthly savings it would take most millennials over a decade to save the required 20 percent down payment on a condo, the figure required to avoid having to pay additional monthly mortgage insurance premiums.
Chris Salviati, a senior growth analyst with Apartment List who helped carry out the survey, said that condos were used as a proxy for a traditional starter home for two reasons; on average they’re over 20 percent cheaper than a single-family home and currently the state lacks inventory of affordable starter homes.
In Los Angeles, the city with the largest gap between expected actual down payment costs, the average cost of a condo is about $420,000 which translates to a down payment of about $84,000. At Berlin Bistro that amounts to over 9,300 orders of avocado toast. However, respondents to the survey estimated they would need just $36,340 as a down payment, less than half the actual amount, or just 4,037 orders of avocado toast.
“It could be the fact that they’re not planning to put down a 20 percent down payment, which a lot of people don’t put down a full 20 percent down payment these days, it could be also that maybe those plans for home ownership for them are far enough in the future that they just don’t have a good enough grasp on what their local market is like,” Salviati said. “It could also be that there’s some expectation that when they are ready to purchase that they might be moving from the city that they’re currently in to a place that might be more affordable.”
Some of those cities include Las Vegas, Kansas City, Indianapolis and Tampa, Florida which according to the survey all have projected 20 percent down payments under $30,000.
However, Salviati pointed out that the trend has been that many of the highest paying jobs are also located in the cities with the highest living expenses, so any mass migration out of the largest and most expensive metros could come at more of a cost than just lifestyle preference, it could also necessitate a career change.
The survey also showed that this problem extended to college educated renters with roughly the same amount of those with college degrees and those without one stating they planned to buy (both over 80 percent) and those citing affordability as an obstacle (both over 70 percent).
The largest concern of those surveyed was the down payment and being able to save up enough money to create an affordable monthly mortgage payment. Over 40 percent of both age groups (18-24 years old and 25-34 years old) reported having saved nothing for a down payment. Just five percent of those between 18-24 years old reported saving over $10,000 and a little over 10 percent of those 25-34 years old reported the same savings.
For the most expensive metro areas in the country this can translate to decades of saving before the necessary funds for a 20 percent down payment could be reached.
In Los Angeles that figure was 20.7 years according to the survey with San Diego (19.7 years), San Francisco (18.9 years) and San Jose (23.9 years) all ranking in the top five in terms of years needed to save for a down payment. Those figures were based on the reported average monthly savings from survey respondents which ranged between $200 and $400 monthly and accounted for growth in home prices, wages and return on savings.
“Many of these people are years, many many years—and many of the cities we did the calculations for it was at least ten years—away from saving a 20 percent downpayment,” Salviati said. “So, I think it kind of depends on how those decisions get made, but there might be some increased migration to some of those more affordable areas, but overall the way things stand right now a lot of the best jobs are in some of the most expensive places.”
In a city like Long Beach, where like much of the state, the housing stock is dwindling and historically low vacancy rates have led to a surge in monthly rental payments, the ability to cross over from renter to homeowner may be more difficult. As rents rise the ability to save goes down and could push that 20-year projection even higher if current trends continue. According to Zillow, another online housing locating service, the average cost of a home in Long Beach is about $550,000 and the average monthly rent has recently surpassed $2,000 per month.
Salviati said that despite the doom and gloom of the survey there is hope that with wages trending up and a potential for construction to begin on starter homes that housing prices could level out. Clarifying misunderstandings about home ownership and getting the conversation started earlier in life he said could also help millennials better plan for their future.
“Just getting this information out there, hopefully, is beneficial,” Salviati said “Letting millennials know that if they do want to purchase a home, it’s something they need to be thinking about well in advance and saving that money. There’s some hope that the market will balance itself out over time and maybe affordability will sort of become a little bit less of an issue as time goes on. “
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