Millennials, Hispanics & Homeownership: Hispanic Millennials Still Live With Parents Despite Working More
Economic recovery has been on the horizon for some time now: Full-time employment is up, unemployment is down, and wages have corrected following the recession to meet the needs of young adults in the labor market. Nonetheless, millennials continue to take up residency with their parents, according to a recent Pew report. This is particularly true for many young Hispanics, who are "unbanked" or "underbanked."
The number of 18- to 34-year-olds has grown by 3 million since 2007, but home ownership among the group has plateaued, or decreased. In 2007, 42.7 million 18- to 34-year-olds headed their own household, and in 2015, just 42.2 million millennials live independently of their families. Similarly, 69 percent of millennials headed their own households in 2010, and as of early 2015, just 67 percent, according to a Pew report.
Typical first-time homeowners now rent for six years before purchasing a home, up from 2.6 years in the early 1970s, according to a new analysis by the real estate data firm Zillow. The median first-time buyer is 33-years-old, compared to a generation ago, when the first-time owner age was three years younger. It's observed that many millennials are delaying many landmarks of adulthood, like marriage, home ownership and children, as they wait for their careers to stabilize, which greatly determines perceived readiness. Consequently, the share of U.S. residents who own homes has dropped to 63.4 percent, a 48-year low, according to the Census Bureau.
Nonetheless, unemployment rates among 18- to 34-year-olds decreased to 7.7 percent in early 2015, which shows sharp improvements from the 12.4 percent unemployment rates of 2010. Also, these young Americans have increasingly gained full-time employment (85 percent of college-educated 25- to 34-year-olds were employed in early 2015), and their median weekly earning has visibly increased since 2007. Positive economic trends withstanding, the number or 18- to 34-year-olds heading households has not exceeded the number of those of the same age group heading household when the recession began in 2007 (25 million compared to 25.2 million). Today, 86 percent of college-educated 25- to 34-year-olds live independently of their families; in 2010, 88 percent of this demographic lived independently.
The sluggish attitude toward home ownership is popular among better-educated and less-educated millennials, and could have significant consequences for the nation's housing market, according. Beyond home acquisition, there are a number of markets that benefit when homes are purchased, as there's a need for furniture, telecom, cable installation, maintenance and other ancillary purchases. Also, Harvard's Joint Center for Housing Studies reports that homeownership is associated with an annual net wealth increase of up to $10,000.
The National Association of Hispanic Real Estate Professionals report on home ownership, among many others, indicated that aspiring homeowners, regardless of ethnicity are ready to buy homes and may be financial prepared to do, but preparedness doesn't necessarily allow them to penetrate the tight mortgage market or seize affordable homes. Many "unbanked' borrowers, who are overwhelmingly Latinos or immigrants, are financially prepared, but at a disadvantage because positive payment histories using cash hasn't been considered in their credit score.
Hispanics have driven homeownership growth for the last decade and represented half of U.S. home ownership growth since 2010, but they are approved at half the rate of non-Hispanic white applicants, according to NAHREP. Twenty-two percent of Hispanics were denied loans in 2013, compared to 11 percent of non-Hispanic white applicants. That same year, Latinos accounted for just 7.3 percent of purchase mortgages, although they comprise 17 percent of U.S. population.
Approximately half of Latino households are "unbanked" or "underbanked," and therefore they are left out of traditional credit scoring models, affecting their chances of receiving a loan. The use of conventional credit score models, and an absence of affordable home options, both contribute to the disparity. However, according to a study produced by the Federal Reserve, immigrants are more likely to repay their mortgages than their credit scores suggests.
Doubtlessly, the denied loans have contributed to the current economic climate. When young adults are able to sign a deed, the purchase price is significantly higher than it was in the past: First-time buyers pay a median of $140,238, nearly 2.6 times their income. Meanwhile, they rent as they attempt to build funds, but rental prices have also increased, making saving for a down payment nearly impossible at times. Additionally, the longer young people rent, the more likely they are to spend money on apartment that have amenities often enjoyed by homeowners, such as swimming pools and stainless steel appliances. For many millennials, living with family while saving for a home is the best way to ensure that purchasing is in the near future.
By the first third of 2015, only 40 percent of 18- to 24-year-olds were living apart from their families. Approximately 63 percent of millennial men lived independently of family, compared with 72 percent of millennial women. Also, those with less education were more likely than college-educated to live independently because they could more easily access job-holding and wages following the recession. Eighty-six percent of college-educated 25- to 34-year-olds lived independently of family, compared with 75 percent of 25- to 34-year-olds with no more than a high school education. However, college enrollment rose among millennials as the group became increasingly dependent on their families.
NAHREP report suggests that the definition of creditworthiness should include alternative credit scoring models. Also, comprehensive immigration reform could allow Latino immigrant to fully participate in the economy. Additionally, other reports suggest that assisting students with student loan debt could motivate young people to purchase homes at a younger age.