By Dakota Morlan
Younger millennials, aged 23 to 31, made up a substantial 18% of homebuyers this year, according to a study by the National Association of Realtors, and are the highest educated age group. So why does buying a house at 27 years old seem so difficult for me?
If I’d known a typical evening in my late 20s would be spent wistfully scrolling Zillow with a glass of red blend to ease the pain, I would have made some different choices. Perhaps I should have followed some of my friends into the consulting industry rather than stick with journalism — those friends are making six figures while I contemplate whether dental insurance is really “worth it.”
Or maybe I should have settled down somewhere more affordable than California. Maybe I should have pulled the trigger on a place back in 2021 when low interest rates were all the rage, but the bidding wars scared me off; or in 2019, when I had less saved up for a down payment but prices were comparably low.
The pandemic was a wild time for real estate, more so than many young adults realize. For those who grew up during the Great Recession and are now entering the house hunting arena, these extreme highs and lows may be misinterpreted as normal. Will there ever be a right time for us millennials to become homeowners?
The ‘right time’ to buy
Last spring, I almost bought a house in Alabama. Yep, Alabama. Just months prior, my parents — who hadn’t been anywhere near the Deep South before — discovered a charming (and affordable) neighborhood in Montgomery while on vacation and immediately bought a second home there. We Californians are crazy, I know.
So, with interest rates still unbelievably low and a small hunk of cash burning a hole in my pocket, I decided to make an offer on a cute $130,000 house close to theirs. The plan was to live there for a bit while working remotely and then rent it out. But nothing is that simple, particularly with the pandemic real estate market, and I chickened out when someone made a higher offer.
Mostly, it was a relief. I never had plans to move to Alabama permanently, and the idea of purchasing a place that far away (or at all) was pretty scary. But I wonder now if I made the right choice and if I’ll ever have an opportunity like that again.
My conversation with Ryan Lundquist helped ease my fear of missing out. Lunquist is a certified residential appraiser and housing analyst for the Sacramento region, which means he’s as objective as one can get. He assured me that while ebb and flow is to be expected with the real estate market, the frenzy caused by interest rates for the average 30-year fixed APR plummeting below 3% in 2020 and 2021 was unprecedented — truly “bananas,” he said.
“It’s profoundly abnormal. We don’t want to see a really unhealthy market like that,” Lundquist said. “It was sort of like eating nachos every single day. … We can’t have that diet and expect good results. I think right now we’re experiencing the consequences of that.”
Interest rates now hover around 7%, which can mean a difference of about $500 to $800 more per month for the average mortgage. Consequently, the housing market has indeed cooled, with 26% fewer sales happening in the Sacramento region compared to last year. “That’s a shocking number,” Ryan confirmed.
From May through September, the median home price in the Sacramento region (including Placer, Yolo and El Dorado counties) has also dipped, by about 9.52% or $59,500, according to Lundquist. A normal variation would be around 1% to 3%, he said, and with this drastic decrease over half of listings have seen a price reduction.
This new market can be tempting for those like me who said “nope” to the bidding wars of the past two years, especially upon learning the term “refinance,” which can involve paying off your existing mortgage with a new loan that has a lower interest rate.
However, Lundquist cautions us that the “marry the house, date the rate” concept does not guarantee success and depends on which way the market goes. Likewise, we should question advice from those who are poised to make money off of our purchases.
“Here’s the thing. Rates are going up right now — at some point they will go down,” he said. “I would personally err on the side of being conservative. … Look at the payment and [ask] can you afford it right now? And are you comfortable with that?”
He also advises us to be wary of overconfident forecasts when it comes to where the market is headed. “People say next year [rates will] be down to 4.5%, or by December they’ll be lower,” Lundquist said. “The reality is nobody knows the future with certainty, and the same people who are predicting that probably weren’t predicting that rates would have gone from 3 to 7%.”
So it seems the only person who can determine the right time for me to buy a house is — you guessed it — me. And for now, I’m biding my time. Prices aren’t low enough to make these interest rates palatable, especially when I would need a roommate or two to make my mortgage payments. The real estate market (like all of us), may need some time to stabilize coming out of the pandemic.
“There is a time and place for buying low and selling high if you’re an investor, and right now it’s buy high,” Lundquist said. “Be patient. See what the market does. Sit down with a loan officer and really go through the financials and say, ‘What can I really afford … and where can I afford?’ There are going to be opportunities. If it’s not in California — if it’s too expensive here — then maybe there’s an opportunity elsewhere.”
A real problem
Let’s be honest: It is too expensive to buy a house in California. Many of those who agree with me have already moved away. I’ve considered it, too, and I can’t say I won’t sometime in the future. But right now, California is my home. I’ve lived here my entire life and, gosh darn it, I’m going to stay as long as I can afford it.
Yet, who can afford it? Even in the Sacramento region, which is positively cheap compared to the Bay Area, my $50,000 salary is considered “low-income.” I’m in good company: The median household income for a family of four in Sacramento County was $91,100 in 2021. Right now, just 27% of Sacramento households can afford the median price home, and that’s pretty abysmal, according to Lundquist.
So perhaps millenials and Gen Z aren’t just being whiny when we claim to have it worse than our predecessors in the realm of finances. From 1985 to 2020, rent prices in the U.S. increased by 149%, while income grew just 35%, meaning rent prices have increased about four times faster than our income.
As Lundquist puts it, “It’s more difficult to make things work today when you have student loans for education, when we’re paying so much more for health care. There’s not some built-in mechanisms, like yesteryear, where my father-in-law retired and had a pension from being a manager at Sears, or where you can buy a house and work at a grocery store.”
Even other generations are recognizing our plight, according to research from the Pew Research Center. In a survey conducted in October 2021, 70% of Americans think young adults have a harder time than their parents’ generation when it comes to buying a home. Pew attributes that disparity to younger Americans taking on more student debt, higher college tuition costs, raising rents and incomes that can’t keep pace with skyrocketing housing prices.
All of these factors may also explain why today’s young adults in the United States can’t seem to fly the coop. They are much more likely to be living in multigenerational households — those that include two or more adult generations — than people 50 years ago, according to a Pew survey in 2022.
Yes, things have changed, and it’s unlikely that cost of living will suddenly become more affordable in California, which remains the most populous state despite its recent slowed growth. It’s no wonder that we shake our fists at news stories about viable housing eclipsed by short term rentals and investment firms buying up entire neighborhoods.
While these concerns are justified in the Sacramento region, they might be small potatoes compared to the bigger problem, which is insufficient affordable housing availability. This is a nationwide problem as “the small detached house has all but vanished from new construction,” a recent New York Times article concluded, with only 8% of single-family homes being built that are 1,400 square feet or smaller.
So what can first-time homebuyers do to get ahead?
“A lot of times it gets chalked up to ‘stop buying avocado toast,’ but that’s ridiculous,” Lundquist said. “Avocado toast is delicious, and that’s not what’s holding people back in life if they’re spending $8 on avocado toast.”
Yet, first-time homebuyers have their own advantages. This year, Americans ages 23 to 41 made up the largest group of homebuyers, per the NAR study, and have a lot of power in the market right now, according to Lundquist. Younger buyers may be more open to money-saving hacks like rooming with a friend to cover the mortgage, and first-time homebuyers have exclusive access to no-or-low down payment mortgages, special grants and programs.
I myself have been able to save up a decent down payment for a (very modest) future house. How did I do this? To be honest, I’ve made bigger sacrifices than skipping avocados and have relied on others a lot more than I would like. But let’s call it “getting creative.” I’ve avoided living in cities because city life is expensive. I’ve rented podunk places with roommates I didn’t particularly like. I’ve lived with my parents — about half of young adult Americans live with their parents, so I guess it’s nothing to be ashamed of.
My advice for young people who feel discouraged is to, first and foremost, determine if home ownership is really a priority for you right now. While owning a home can be a reliable way to build generational wealth (one that excluded people of color for decades in the U.S. due to racist housing policies), investing in stocks, mutual funds, art and even fractional real estate has become easier than ever for the average American, and riskier investments like cryptocurrency might see higher returns. Also, just saving your cash is never a bad idea.
In March 2021, my 29-year-old friend Allison and her then-fiance Thomas purchased a $418,000 condo in The Mill at Broadway, a newer development close to downtown Sacramento. Owning a home in her 20s was a lifelong goal for Allison, but she didn’t fully realize the costs until she took the plunge.
“I don’t think I understood the magnitude of how much I would need to rely on others until I got into the process,” she told me.
Allison began looking at homes on her own in 2019. She had started her career in city planning right out of college and found affordable rent situations with multiple roommates that allowed her to save up quickly. However, she soon realized she couldn’t afford the options in the areas of Sacramento where she wanted to live, even with her parents’ pledge to pitch in with the down payment.
Then in 2021, she and Thomas decided the low interest rates were too good to pass up, and they jumped on the opportunity together. “Besides the investment, we just knew that we wanted to live in Sacramento, and we might as well put [down] roots here,” she said.
While being in a partnership made home ownership attainable, Allison wishes she had saved up even more for supplemental tax and closing costs, which were greater than she anticipated. Likewise, she didn’t expect to be so strapped for cash after moving into her new home.
“Buying a house has completely disrupted my finances. It’s been very expensive to pay the mortgage, which was more than my rent was; and, before, I had this savings built up, and that all went toward the house,” she said. “Now I’m in a place of building back up my savings, which feels slower. It’s a huge source of anxiety, and it feels like the stakes are higher.”
So was it worth it? Only time will tell from an investment perspective; but either way, Allison is satisfied with the choice she and her husband made at the start of their marriage.
“You’re buying a place to live and to put roots down, to build community and insert yourself in a neighborhood,” she said. “Those benefits are priceless.”
This story is a part of the Solving Sacramento journalism collaborative. In 2022, we are focusing on finding solutions to the lack of affordable housing in the Sacramento region. Solving Sacramento is a project of the Local Media Foundation with support from the Solutions Journalism Network. Our partners include California Groundbreakers, Capital Public Radio, Outword, Russian America Media, Sacramento Business Journal, Sacramento News & Review, Sacramento Observer and Univision 19.
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