Why you should care
In some parts of the U.S., people would have to keep saving into their golden years before they could buy a home.
Saving for a down payment on one’s first home is a rite of passage in the United States, one that helps many realize what was and is seen as a part of the American dream. Millennials who witnessed their parents’ misfortune during the global recession of 2008 — many of whom suffered housing devaluations, or worse — are now contemplating the housing ladder themselves. But saving for a 20 percent down payment, the industry standard today, could take them much longer than it took earlier generations.
At median U.S. salaries and home prices in 1950, it would have required less than a decade to save a 20 percent down payment. But if you start saving now in Los Angeles, for example, it’ll take 43 years to save that much, and it’s even longer in other parts of the country. On average …
It takes 14 years to save for a down payment in the U.S. — 27 years in major U.S. cities and a whopping 95 years in one part of Colorado.
That’s according to a report comparing median home price and income data, released today by San Francisco–based Unison, a “co-investing” real estate platform that offers buyers help with down payments in exchange for home equity. The report examined roughly 30,000 U.S. cities to estimate how long it would take to save for a home, assuming Americans were saving 5 percent of their gross income each year. Mountain Village, Colorado, a tiny ski resort town, topped Unison’s index of towns where it takes the longest to save.
The U.K. isn’t any better. Last year, calculations by the BBC found that it would take buyers there an average of eight years to save enough for a 20 percent down payment, but those calculations depended on people saving 15 percent of their income.
Many will be surprised to learn that homebuying saving times in San Francisco were dwarfed by those of Los Angeles, which was higher than any other major metro area on Unison’s index. While San Francisco has a higher median home value, prospective buyers in San Francisco have higher incomes than those in LA, meaning it takes longer to save in the City of Angels. Still, the Golden State proved to be a daunting environment overall, requiring more than a quarter century to save enough for a down payment in Los Angeles, San Francisco, San Diego or San Jose.
On the other hand, the Midwest appears to be far friendlier for potential homebuyers. Among major cities, Detroit, Wichita, Columbus, Kansas City, Indianapolis and Louisville offered the shortest paths to homeownership — with Detroit the quickest at just seven years, according to the report. These examples are part of a growing trend of rising housing costs that’s contributing to a population shift from California to states like Arizona. “You’re either going to move or you’re never going to have a house,” says Joel Kotkin, a presidential fellow in urban futures at Chapman University.
Unison has a vested interest in the hardship of saving for down payments given its business model: It makes up the difference — up to 20 percent — of a consumer’s down payment while getting a percentage of any changes in the home’s worth at the time of sale. And other reports in recent years have pointed to far shorter saving times. The Down Payment Report of 2017, for example, noted that 43 percent of homebuyers saved for down payments for six months or less, while 32 percent of first-time buyers saved for more than two years. A great deal depends on how much of a person’s income can be squirreled away each month. And, of course, there’s the very worrying trend of buyers putting down lower and lower percentages — keeping in mind that low down-payment percentages topped out at 73 percent in 2009.
But whatever the savings model or goal, the growing percentage of severely cost-burdened renters and declining national homeownership rates are raising alarm bells nationwide. As fewer families can afford homes and must rent smaller spaces instead, Kotkin expects to see a decline in birth rates — citing countries like Japan — which could cause negative long-term ripple effects on the economy.
“If we want to maintain homeownership, we’ll have to do what we did after World War II: Build communities that are relatively affordable,” Kotkin says. Historically, owning a house was among the most reliable ways for Americans to build long-term wealth — though notably, homeownership has never been distributed equally across racial and socioeconomic classes. As fewer people can afford to buy homes, opportunities to bolster intergenerational wealth — and enjoy short-term financial gains — disappear along with it.
One example? Tax benefits. Homeowners can qualify for deductions on home mortgage interest that renters can’t access. The financial plight of renters has caught the attention of three 2020 Democratic candidates in particular — Sen. Cory Booker, Sen. Kamala Harris and Sen. Elizabeth Warren — all of whom have released policy plans targeted at renters. In 2018, Harris introduced the Rent Relief Act, a bill co-sponsored by fellow presidential hopeful Kirsten Gillibrand, which would offer a refundable tax credit for individuals paying more than 30 percent of their income on rent. She reintroduced it this year, while Booker proposed a similar plan, under which he estimates families would receive a median tax credit of $4,800.
These political messages could pay off, with 3 out of 4 renters saying they aspire to own a home. But their confidence in this vision is slipping. Nearly a third of millennials, meanwhile, think they’re more likely to win the lottery than own a home, according to a 2019 OnePoll survey conducted for Unison. But while winning the lottery requires a stroke of luck, saving for a home should not.