If you feel a little behind on your homeownership goals — or if you’re wondering whether homeownership should even be one of your goals — don’t worry. First, you’re not alone. Second, it’s harder to save up for a home than it’s been in a long time.
A recent CNBC article on the difficulties of saving up that down payment noted that it now takes nearly a decade to accumulate the cash. (In Australia, average house prices are even higher.) Here's what CNBC had to say:
Housing expenses such as rent and insurance add nearly three years to the time it takes a typical renter to save up for a 20% down payment on a median-priced home. That’s according to home and apartment rental site Hotpads, which is owned by Zillow. That’s because the typical renter spends about 34% of his or her income on housing. It takes the typical renter about eight years to save for a down payment, if they are able to sock away about 16% of their income each year. And of course, in some locations that’s easier to do than in others.
Eight years, if you can set aside 16% of your income each year in addition to the 34% you’re likely already putting towards housing costs.
Plus the 15% you’re supposed to be putting towards retirement.
And that three-month emergency fund you’re trying to save up.
And debt repayment.
And so on.
If you’d like a different perspective on homeownership than “just keep saving,” Curbed recently published a longread on why we’re currently in an affordable housing crisis:
Nearly two-thirds of renters say they can’t afford to buy a home, and saving for that down payment isn’t going to get easier anytime soon: Home prices are rising at twice the rate of wage growth. According to research from the advocacy group Home1, 11 million Americans (roughly the population of New York City and Chicago combined) spend more than half their paycheck on rent. Harvard researchers found that in 2016, nearly half of renters were cost-burdened (defined as spending 30 per cent or more of their income on rent), compared with 20 per cent in 1960.
The National Low Income Housing Coalition found that a renter working 40 hours a week and earning minimum wage can afford a two-bedroom apartment (i.e., not be cost-burdened) in exactly zero counties nationwide. In other words, it isn’t possible.
Although the entire piece is great, and you should check it out if only for the charts and graphs, the tl;dr is that finding an affordable home these days is hard. So is finding an affordable apartment.
Moving to a lower cost-of-living area can help, but only to a certain point — and only if you can find equivalent work in your new location. I’ve written a lot about how moving to a new city has improved my finances, but that’s in part because I was able to take my freelance career with me when I moved. Also, even though my monthly rent is half of what it used to be, my loft-style studio apartment is only 4.27x9.75 metres.
So if you feel like you should be a homeowner by now, or should be setting aside more money for that down payment, or should be living in an apartment that’s bigger than a one-car garage, well... I mean, I can’t tell you how to feel, but I can suggest that you not beat yourself up over it.
Because the maths isn’t in your favour right now.
One more tip: if you’re thinking about homeownership because you’ve heard it could be a good long-term investment, remember that you can always just put your money into investments.
Are you better off:
Tying up your cash into a home
Finding an alternative investment, coupled with a rent payment?
Any cash that’s tied up in home equity, including the down payment, is locked into a lifetime of just-keeping-pace-with-inflation.
This opportunity cost, combined with the additional overhead of homeownership, can (in many markets) negate any advantage that comes from owning.
If you decide to go that route, don’t feel bad if you’re not putting every extra dollar into your investments. Save what you can, buy and hold, and let your net worth grow.
And if you feel like it, you can always take money out of those investments and use it on the down payment for a home.