The biggest difficulty for first-time home buyers is saving up the down payment. As we said above, you can usually put only 10% down on a house and often only 5% down. For the 2019 median house price in the U.S., a 10% down payment would be $23,000. Saving this amount is difficult, so you might do what many young people do: go to your relatives for help. Remember, though, that you cannot borrow the down payment, but anyone can give you a gift of some or all of the cost.
The second biggest difficulty for first-time home buyers is getting a mortgage. As I mentioned earlier, in order to get a qualified mortgage your debt payments to gross income ratio cannot be more than 43%. This includes auto loan, credit card, and student loan payments. Recently, student loans have surpassed the $1.5 trillion mark and exceeded the amount of credit card debt owed by all the households in America ($970 billion in 2018). The amount of student debt that young people have is negatively affecting the economy, slowing down consumer spending and home purchases. There has been talk in Washington, D.C. about figuring out a way to alleviate this debt, but no effective action has been taken yet.
Another difficulty for first-time buyers is that no one is really building a lot of starter homes’ for first-time buyers. This is like a vicious cycle. Many first-time buyers cannot qualify for homes at today’s prices, so builders are not building as many, so the choices for those first-time buyers who do qualify are limited.
Finally, after a big rush to the cities, the price of housing in hip neighborhoods is getting too expensive, leading millennials to flock to the suburbs. In a 2019 article in the The Wall Street Journal entitled “American Suburbs Swell Again as a New Generation Escapes the City” Valerie Bauerlein discusses this phenomenon:
Millennials, the generation now ages 23 to 38, are no longer as rooted as they were after the economic downturn. Many are belatedly getting married and heading to the suburbs, just as their parents and
grandparents did.
Millennials are trying to find small towns that give the feel of a community, instead of a big sprawling suburb with big houses. This means a longer commute to work but better schools and environment for the whole family.