How many millennials do you know who are renting or living with their parents?
Gone are the days when owning a home was the norm for adults over 30. Millennials are not purchasing property nearly as much as prior generations. Are they lazier, as many articles would have us believe? Or is the cost of living increasing too much compared to incomes?
Why Is Homeownership Declining in the U.S.?
A new Porch study set out to examine factors leading to this decline in homeownership. The study looked at several key areas: housing costs as a percentage of income, rental costs as a percentage of income, and homeownership rates by state. It’s no secret that housing costs are rising, but the study took a deeper dive and looked at what percentage of their income homeowners and renters spend on housing in each state.
Data show California is the most expensive state for homeowners, who spend 22.6 percent of their income on housing. As such, it’s no coincidence that California has the third lowest rate of homeownership in the U.S., at just 55 percent of residents. Before buying a house, residents have to plan and budget their finances, and when they know they will spend a higher percentage of their income to pay for their house, they are much less likely to make the purchase.
The state able to maintain the highest rate of homeowners in the country is West Virginia at 73 percent. Why the high rate? West Virginia is the most affordable state to own a home relative to income— homeowners spend just 12 percent of their income on housing.
The study examined cities, as well. Newark, N.J., is the most expensive city to own a home, where homeowners spend a stunning 31 percent of their income on housing. Perhaps unsurprisingly, Newark has the lowest homeownership rate of any city in the U.S., at just 23 percent. And New Jersey itself has the second highest percentage of income going to housing costs at 22.6 percent.
In addition to the cost of owning a home, the study also looked at the cost of renting. Florida is the third most expensive state for renters, who spend a whopping 35 percent of their income on rent. The state has seen a nearly 5 percent decline in homeownership since 2009, the largest of any state in the country. When people spend a larger percentage of their income on rent, it’s much harder for them to save enough money to buy a house.
The Bottom Line
Overall, homeownership is down 3 percent in the U.S. since 2009. It’s clear that housing prices are rising faster than incomes and owning a home is more expensive than ever before. And when residents have to budget a higher portion of their income toward living, they are considerably less likely to own a home.
Can you afford a home where you live? Why do you think that is the case?
Let’s talk in the comment section below.