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Report: Nearly Half of DC Area’s Young Renters Could Afford to Buy

by Lark Turner

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Nearly half of the DC-area’s older millennial renters could afford to buy, according to a new study from Harvard’s Joint Center for Housing Studies.

The study analyzed the country’s 85 most populous metro areas and found that the DC region has a relatively high rate of renters aged 25-34 who can afford to own: 44 percent. On average, this group makes $65,952 a year.

In New York’s metro area, the share of older millenial renters who can buy is 30.3 percent. In San Francisco, it’s 17.1 percent for a group that takes home an average of $62,908 annually.

The study looked at the DC statistical area, which is worth noting because it takes into account such a wide swath of the region. New York and San Francisco’s metro areas are not quite as expansive.

The homeownership rates in the DC area for the same age group clocked in at 34 percent. The overall homeownership rate in the region is 63.1, according to the study.

The study used measures of affordability including mortgage payments, home insurance and taxes, as well as a 5 percent down payment and a 30-year fixed-rate mortgage with interest rates based on the 2013 interest rate average on a median-priced home in that metro. The median home price in the DC metro area for that year was $378,050, and the center calculated monthly homeownership costs at $2,129.

So why aren’t more of the renting group buying? The answer comes down to more than debt, according to CityLab, and may be related to a combination of relatively poorer credit compared to other buyers, the presence of institutional investors and the prevalence of all-cash purchases. But whatever the cause, the trend may explain why local developers are investing so heavily in high-end rentals appealing to millennials.

See other articles related to: rent vs. buy, rent vs buy, harvard, citylab

This article originally published at http://dc.urbanturf.com/articles/blog/nearly_half_of_dc_young_renters_could_afford_to_buy_instead/8835

8 Comments

  1. huristm said at 2:21 pm on Wednesday August 6, 2014:

    Huh?

  1. justin s said at 2:30 pm on Wednesday August 6, 2014:

    Median price of $378,050?

    In DC?

    It might help to look at the distribution of where those sub 400k homes are & then compare that against where the young people making 65k+ live.

    I doubt you’ll see much overlap.

  1. Lark Turner said at 2:41 pm on Wednesday August 6, 2014:

    Hi Justin,

    As we noted, the stats in the report are for the entire DC metro area — a very large statistical area that stretches all the way to a small part of West Virginia.

    Lark

  1. Jason said at 3:22 pm on Wednesday August 6, 2014:

    Student debt, which means it takes a lot longer to save any down payment, even 5% of $400k is a lot and closing costs in DC easily add $10k to a $400k purchase. The end of FHA loans being cheaper than PMI.

    Job insecurity: How can you commit yourself to a certain lifestyle level for 30 years in this economy built on near zero income security.

    Desire for labor mobility: When that senior level job offer or 100% telework position comes around in Baltimore or Chicago or Miami or some other somewhat less costly region, we millenials are taking it and we don’t want to deal with selling a tiny little condo with a $600/month fee.

    Small condos are often bad investment and can have high fees that eat up most of the benefits of ownership.

  1. skidrowedc@gmail.com said at 3:33 pm on Wednesday August 6, 2014:

    Since the study covers the metro area but most of the higher-paid 44% work in a handful of job centers, it seems like another likely conclusion is that the problem isn’t affordability per se.  It’s affordability in locations in which they want to live, which means proximate to jobs, quotidian retail, and entertainment.  Show me a $378,000 house anywhere near the job, retail, and cultural centers of downtown DC, Tysons, Reston, Ballston-Rosslyn, Bethesda, and so forth—there aren’t any!
     
    It used to be that affordable (if sometimes crime-ridden and/or rundown) neighborhoods existed fairly close to these centers. But nowadays, affordable more or less equates to longer commutes, food deserts, no sit-down restaurants for miles—sometimes in addition to being crime-ridden and/or rundown. Affordable also generally means lower-performing public schools, which perhaps isn’t a current problem for Millennials but may be on their minds when they buy.

    What to do?  No good answer; this is American capitalism in action, and it’s also the development pattern most common among cities through history.  About the best we can hope for is to soften the edges with evenly distributed transportation options, improving underperforming schools, and planning controls that reduce the overconcentration of prosperity.

  1. monademarkpv said at 3:47 pm on Wednesday August 6, 2014:

    I agree with skidrowdc. It isn’t about if they can afford it, it is about can you afford in the neighborhood you want to live in. Dupont,Bloomingdale,Georgetown and mostly anywhere in NW isn’t that cheap and if you find a house that is around 300k it will need 100k of work or more. Some are brave and trendsetters and will buy in neighborhoods that may or may not be desirable, but they are willing to wait it out and sometimes it pays off huge. People have their own motivations for why they rent vs buy, but very few are willing to answer survey admitting things like “I don’t want to spend or live 300k in Anacostia even though I can afford to live in that neighborhood”

  1. 4 Brothers Buy Houses said at 3:53 pm on Wednesday August 6, 2014:

    Justin, I think you’re right.  Due to the factors you listed, for many Millennials, home ownership is simply not attractive, whether they can afford it or not.  It’s also important to note social statistics such as age to marry increase and number of children per family decrease.

    And to skid rows point, it will be interesting to see how long folks continue to buy outside of the city and spend 3 hours a day commuting.  Even with the job security that DC offers, at some point I would think folks will start to look at other, more affordable and exciting cities, like Richmond, Charlotte, Nashville, etc.

  1. skidrowedc@gmail.com said at 10:11 am on Thursday August 7, 2014:

    4 Brothers Buy Houses—There is a non-intuitive, but well-established urban development concept which is, basically, that congestion begets more congestion.  Even in places that are outrageously crowded, things that attract people (jobs, stores, entertainment, etc.) continue to move in.  A few leave for less crowded places, but there is a continual net gain.

    We see this clearly in highly urban places like Midtown Manhattan or Mexico City.  But less urban and suburban locations can have it, too—think of the horrible congestion of western Los Angeles, or our very own Tysons Corner.  I had a project in Tysons in 2001 and found its traffic unbearable—but since then, not only has development continued apace, but several major corporations have CHOSEN Tysons as their headquarters location!

    So yes, some will peel off of Greater Washington in favor of calmer and cheaper waters.  But the principle indicates that they will be replaced and then some, continuing to increase congestion here in Washington.

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