With more than $58,000 in student loan debt from Northern Arizona University and a full-time job that barely got her from paycheck to paycheck, Kaitlin Kump never thought she would be able to buy a home in her 20s.

Kump buckled down, working three or four jobs at a time and living in her grandfather’s spare bedroom rent-free for several months until she had finally saved enough money to buy her very own condo.

But Kump, 28, is an exception among millennials, many of whom entered the job market during the 2008 economic recession.

A recent report from New America showed that while the millennial homeownership rate rose slightly in 2017, to 38.4%, that was still 8 percentage points lower than the rate boasted by Generation X and Baby Boomers when they were at the same age.

If millennials – young adults aged 25 to 34 – had the same homeownership rate their older counterparts did in 2000, there would be 1.3 million more young homeowner households, said the report, which was based on data from the Urban Institute.

“Since they’re becoming homeowners later in life, this is going to have a huge impact on their wealth-building capacity in the future,” said Jung Choi, research analyst at the Urban Institute.

Millennials are not staying out of the housing market by choice – they’re being kept out. A low housing supply, the growing burden of student loan debt and a lack of financial literacy are just some of the problems first-time homebuyers currently face.

All those applied to Kump, who had a complicated relationship with finances.

“I didn’t think of money as a tool,” the Valley resident said. “I didn’t understand investment accounts. I didn’t even understand the concept of investing.”

Choi said all those obstacles combine to force millennials to wait until later in life to become homeowners, meaning they are living with their parents for longer periods of time than previous generations did.

The New America report said the share of young adults living with their parents increased from 12% to 22% between 2000 and 2017.

A recent rule change by the Federal Housing Administration is designed to help ease at least one barrier to millennial homeownership. The Oct. 15 change lets FHA insure mortgages for single units in previously unapproved condominium projects, which tend to be more affordable than single-family homes. The “spot approval” process had been banned in 2010.

The rule change lets homebuyers put down a downpayment of just 3.5%, instead of the typical 20%, a huge boon for millennials struggling with high housing prices.

Mary Roberts, the president of the Arizona Realtors Association, said housing prices are back where they were before the recession. And Roberts said that while the FHA change helps first-time buyers get a foot in the door, it can end up costing them more in the long run.

“It’s actually creating more cost for the homebuyer,” she said. “You could be paying up to $200 more just for that private mortgage insurance every month.”

“It’s helping for those that can afford it,” she said of the rule change.

Roberts said cities, especially in states like Arizona where the population is booming, need to develop policy solutions to ease the problems of affordability and an increasing lack of housing supply. In Lake Havasu, where Roberts is based, the housing vacancy rate is as low as 1% or 2%, she said.

“These cities need to be more proactive and figure out how to get more affordable housing so that the millennials can buy at a cheaper price,” she said.

For Kump, her struggle was worth it.

“It was such an empowering moment when I bought my own home,” she said. “I am a 28-year-old woman and I bought my own home, and I live alone. That comes with a lot of pride for me.”

 

Story by Lindsay Walker, Cronkite News