Meet Me in St. Louis: Where Millennials Can Actually Find an Affordable Home
- Nationwide, 70 percent of homes for sale are affordable to the typical millennial.
- Honolulu has the lowest share of inventory affordable for millennials, at 25 percent.
- Akron has the highest share of inventory affordable for millennials, at 90 percent.
Millennials want to buy homes. More so than the rest of us, in fact – 12.9 percent of millennials say they’d like to buy a home this year, compared to only 12.1 percent of the population overall, according to the Zillow Housing Confidence Index. The bigger question is, will they be able to find a home they can afford?
The typical rule of thumb says that housing costs should not exceed 30 percent of household income. Knowing this, we analyzed the share of homes nationwide and in 96 large metros that would be affordable to millennials making a typical salary for workers their age without exceeding that 30 percent threshold[i]. Nationwide, about 70 percent homes for sale on Zillow as of the end of 2014 were affordable for millennials.
But real estate is local. Available, affordable homes are more difficult to find in some places, and easier in others. In Honolulu, for example, only a quarter of available homes would be affordable to millennials, the lowest share in the U.S.
Millennials looking for homes in any of the larger California metros will have to look extra hard. Of these metros, San Jose has the largest share of inventory that would be affordable to local millennials – at 38 percent. In Los Angeles, just 26 percent of homes are affordable for millennials, the smallest of any California metro and just shy of the lowest share in the nation.
But millennials in Midwestern metros should have more luck. Akron, home of LeBron James (who is a millennial, but he probably has a bigger budget than most young adults his age), has the largest share of inventory affordable to millennials, at 90 percent. Millennials in St. Louis should also have no trouble finding a home to purchase, with 85 percent of inventory priced at or below a typical millennial’s price threshold. In fact, with so much affordable housing, it is no wonder St. Louis has the highest homeownership rate among those making the least.
Affordability is a widespread concern, but it’s not bad news everywhere. Metros with the biggest year-over-year improvement in the number of millennial-friendly, affordable homes for sale include Atlanta (68.6 percent of homes were affordable for millennials at the end of 2014, up from 64.6 percent in 2013, a 4 percentage-point increase), Albany (77.8 percent in 2014, 74.3 percent in 2013, a 3.5 percentage-point bump) and Seattle (62.7 percent in 2014, 59.8 percent in 2013, a rise of 2.9 percentage points).
Then again, many more areas experienced a drop in affordable inventory last year, including the U.S. as a whole, where the share of affordable listings fell from 70.5 percent at the end of 2013 to 69.7 percent at the end of 2014. Of the 96 metro areas analyzed, affordable inventory levels rose or stayed flat in only 30 and fell in the remaining 66 metros. Markets with the biggest drops in affordable inventory include Austin (56 percent in 2014, down from 65.1 percent in 2013, a 9.1 percentage-point tumble), Nashville (61.9 percent in 2014, 70.8 percent last year, down 8.9 percentage points) and Provo, Utah (56.6 percent in 2014, 65.3 percent in 2013, down 8.8 percentage points).
The lack of affordable homes for sale in many areas is made worse by a national rent affordability crisis, which hits millennials particularly hard because so many of them rent before buying. And more money going into landlords’ pockets makes it more difficult to save for a down payment on a home. In other words, millennials in some markets have to deal not only with potentially crippling rent, but also a lack of affordable homes to purchase.
[i] In order to calculate the portion of inventory affordable to millennials, we used American Community Survey data to calculate the median income of households headed by 23 to 34 year-olds. Income was chained forward from 2013 using the Employment Cost Index reported by the Bureau of Labor Statistics. We then calculated the maximum price of a home a millennial could purchase assuming that they would spend no more than 30 percent of their household income on a mortgage payment. We then calculated the fraction of homes listed for sale on Zillow at a price below the maximum affordable price.