Numbers Count: Down-payment plan for millennials at home

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Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.

The numbers: More young adults living with parents

Young man in the kitchen with his mom as she chops vegetables and chats with him.Millennials are more likely to be living in their parents’ home today than they were in the depths of the Great Recession, according to a new study from the Pew Research Center released July 29. In 2010, 69% of 18- to 34-year-olds lived independently. As of the first four months of this year, only 67% of young adults in the same age group were living independently. Even as job prospects have improved over the same time period, the share of young adults living in their parents’ homes has increased from 24% to 26%.

What counts: We all have to live somewhere, and living with parents is frequently the lowest-cost option. If you’re living with parents; or, parents, if your grown kids are living with you, here are 3 simple tips:

  • Save
  • Save
  • Save

The Pew report finds that unemployment among the 18-34-year-old crowd has dropped steadily for five years from 12.4% in 2010 to the current level of 7.7%. This suggests that even millennials with jobs are opting for home cooking and free laundry service. Moms and dads everywhere may hate to hear this, but living at home might be their sons’ and daughters’ first brilliant financial decision.

By living rent-free, stay-at-home millennials have a phenomenal opportunity to start saving for a down-payment on a future home. Coming up with a down payment may be the biggest hurdle for first-time homebuyers, considering that the median selling price of a vacant home in the second quarter was $156,300, as the chart below from the U.S. Census indicates.

Graph showing median asking sales price in recent years (from US Census)
Let’s do the math on a down payment: The median weekly income for a college-educated millennial was $951 in 2014 — $49,452 annually, according to the Pew Research Center. With that income, saving just 10% for 12 months would put enough money in a millennial’s bank account to make a 3% down-payment on the median-priced home. Now if you’re living at home and not paying rent and other housing costs, stashing away 10% of your paycheck should be a piece of cake.

If the goal is to put down more on a home, here’s the math: If you wanted a 5% down payment you’d need $7,815, and you would have to save 16% of your income; 10% down is $15,630, and you would need to bank 32% of your income for a year. To put down 20%, you would need $31,260, which would require saving 64% of your income for a year — so if you’d like to buy with that size of down payment you may want to plan on saving for two or three years.

The bottom line is that there is a silver lining to millennials living at home. I would encourage parents to cut their kids a deal. Like free parking, casseroles, and ice cream if, in return, they commit to a down-payment savings plan.

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