The next step in this Blog series on states includes the most dynamic and important demographic trend for the next two decades: Millennials. Where Millennials locate (and where they leave) will make a decades-long impact on state and local housing markets and economies.
Very often, economics follow the path of least resistance, which in terms of housing goes back to overall satisfaction, jobs availability and affordability. People will not locate in great numbers in locales and states in which they cannot afford to remain.
To help identify where Millennials are most likely to head, GoBankingRates.com used a methodology to evaluate:
- How long it would take to save for a 20 percent down payment in each state
- Amount of mortgage payment required to buy a house in each state (after reaching the down payment goal)
Their methodology included:
- Identifying the statewide-median home price (data were available in all states and the District of Columbia except for North Dakota)
- Utilized the national median income for 25 to 34 years olds of $60,932
- Assumed a required 20 percent down payment, then using a 30-year fixed-rate conventional loan
- Assumed the prospective buyer would save 20 percent of their income each year for the down payment
- Ignored home price appreciation (this was not stated, but appears implicit in the calculations)
So who are the winners and losers, based on this methodology? The first of the following two tables shows the states that are most challenging to Millennials based on the need to save a 20 percent down payment and then make payments on the mortgage balance, while the second is the most affordable. Obviously, the median listing price was rounded for reporting purposes to the nearest $100, but the rounding was not included in either the time to down payment calculation or the monthly payment numbers. When comparing the least affordable state (Hawaii) to most affordable (West Virginia) it takes four times as long to save up for the down payment, and then the monthly mortgage payment is 3.7 times greater.
What I would ideally would like to see added in this analysis:
- Preferable to use each state-specific median income for the age group since they were using state-specific home prices. Sincerely doubt that 25 to 34 year old compensation is static from one state to another
- State-specific job growth rates – even if housing is comparatively affordable, without a job it is unobtainable. Kansas, which ranks 7th best overall using these methodologies, is one of two states that posted a year-over-year loss in jobs for the 12-months ending October 2017 according to the Bureau of Labor Statistics
- State specific home price growth rates to aid in more accurately reporting the time required to save for a down payment. If homes are appreciating, the time necessary to save for a down payment is greater than a market with stagnant values
To read the entire GoBankingRates.com article click https://www.gobankingrates.com/investing/states-millennials-can-cant-actually-afford-buy-homes/
While this is a start at analyzing where Millennials will likely head, failure to include job availability and remuneration leads to a foggy interpretation of the results – at best.
As we say in economics, “If you agree with my assumptions you must therefore agree with the conclusions.” While I have no doubt the least affordable states are relatively representative, the most affordable 10 lack necessary information to reach such a conclusion.
Ted