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Where Can Millennials Afford to Buy Homes?

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By Jennifer Riner of Zillow

With rent prices across the nation higher than ever, millennials are dipping into their savings and taking the plunge into real estate investing, maybe a little sooner than they had expected for themselves. But why not now? Mortgage rates are at an all-time low, and homeownership has its perks – like customizable interior upgrades and one of the largest return-on-investment opportunities one can make in a lifetime.

Nationally, 70 percent of homes on the market were affordable to young adults in late 2014, according to Zillow. However, many major metros where millennials yearn to live remain largely unaffordable, with home prices soaring and inventory remaining tight.

For perspective, take a look at two mid-size cities millennials can afford to purchase property in, assuming a 5 percent down payment and 30 percent of monthly income devoted to monthly mortgage payments.

St. Louis, MO

In St. Louis, 85 percent of the homes for sale are affordable for the typical millennial budget, again assuming 5 percent down and 30 percent of monthly income dedicated toward the mortgage. The median home value in St. Louis is $100,300, which has risen 5.6 percent over the past year. Zillow predicts values will rise another 2.8 percent in the next year, so millennials with slightly tighter budgets looking to move to St. Louis should start searching for homes now rather than later when listing prices are higher. 

Pittsburgh, PA

Pittsburgh is slightly less affordable for millennials compared to St. Louis, potentially because of its proximity to the coastline. Over 80 percent of the homes for sale in Pittsburgh as of Q4 2014 were considered affordable for Gen Y buyers – again, assuming the aforementioned financial specifications. The median home value in Pittsburgh is currently $105,600, representing a 4.5 percent 1-year change. Zillow predicts a 2.7 percent 1-year increase, allowing recent buyers to build steady, albeit unhurried, equity over time.

Unfortunately for millennials moving westward, prices on the West Coast look grim for fresh house hunters. Just a quarter of homes in Los Angeles and Honolulu are affordable when considering the median income of young adults in those metros. But, move just north to Portland, OR, and the options improve slightly, with 51 percent of homes on the market being affordable for young adults. In Houston, 68 percent of homes on the market in late 2014 were within reach for millennials, too.

So, just because you’re young and on a tight budget, that doesn’t mean you have to live in a smaller city to buy a home or benefit from a low-interest rate. Keep an open mind to some of the mid-sized cities, especially in the Midwest, as they may offer the same cultural flair as the coast without the sticker shock.

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