The economic shutdowns in reaction to the COVID-19 pandemic are forcing people to dip into their savings to cover basic necessities – and that will put a crimp in people’s ability to save for a down payment for a home.
That is especially true for millennials, as a new realtor.com analysis reports that it will take “nine months of saving to recoup a single month’s worth of expenses” for the average millennial. The report found it would take the average millennial 53 months to recover that value back into their savings, if they had no income for six months.
“Millennials may largely escape the worst of COVID-19, but with an unemployment rate of 13.4 percent, this age group is not immune from the economic fallout. As they cobble together money for expenses from unemployment benefits and side-hustles, many will find that they need to dip into savings to cover necessities from groceries to rent. This could delay their home purchase by years,” realtor.com® Chief Economist Danielle Hale said. “Homeownership has already been delayed for many millennials and the coronavirus could push the timetable even further out for some.”
The realtor.com analysis found that San Francisco and Nashville led the down payment delay at 10 months to recoup a single month’s worth of expenses, with Seattle and Denver close behind at 9.8 months. All four are markets have above-average incomes combined with above-average housing costs and expenses.
The analysis assumes a savings target of 10 percent of their take-home pay (the 20-year national savings rate average was 6 percent, but recently spiked to 33 percent) and that household incomes will return to their pre-COVID levels after the lockdown. It does not account for time ramping back up to full employment or potential salary reductions, which could further delay millennial homebuyer recovery.
For this analysis, the average millennial household expenses are $3,770 per month, with a median monthly household income of $4,240 after taxes. While COVID-19 has impacted people within all generations, millennials are the largest generation in U.S. history and make up the largest homebuying segment.
“Most young buyers purchase a home with much less than a 20 percent down payment and while these loans are still technically available, finding a lender willing to make one may be more challenging. Rather than saving for the extra years needed to buy into a pricey city, millennials could turn to suburbs or more affordable metro areas,” Hale said.