Sachita Kumar did something that few people her age appear to be doing in 2015: She bought a house.
“We decided that we just didn’t want to pay someone rent, so we decided to own something,” says Kumar, 26, a telecommunications consultant. She and her husband bought a townhouse in Somerset, N.J. and, unlike many Americans in their age group, they were able to afford the substantial 20% down payment. “A reason a lot of millennials don’t own is because of that,” Kumar says.
There are many practical reasons why millennials hold off on buying. Young adult employment has risen to around 7.7%, according to the Pew Research Center, up from 6.2% in 2007. Kumar has advice to those who can afford it: “You should definitely buy.”
She has a point. There are only two metro areas where renting is cheaper than buying for people aged 25 to 34, new data from real-estate website Trulia found. Renting is 5% less expensive than buying in Honolulu and 2% less expensive in San Jose, Calif., but buying is a no-brainer in 98 of 100 metro areas. It’s also 11% cheaper to buy than rent in the New York and New Jersey metro areas, where Kumar bought, and 10% cheaper in Newark, N.J. and San Diego. And it’s more than 40% cheaper to buy than rent in Houston and San Antonio, Baton Rouge and New Orleans, Syracuse, N.Y., Fort Lauderdale, Fla., and Miami, Oklahoma City, and Detroit.
Millennials have received a lot of criticism for holding back the housing market by not buying as many homes as economists (and would-be sellers) would like. Five years into the economic recovery, many continue to live at home with their parents: There were 71% of adults aged 18 to 34 (excluding full-time college students aged 18 to 24) living independently in 2007 versus just 67% in 2015, according to a recent study by the Pew Research Center. Although 74% of millennials expect to buy a home, more than half plan to wait until 2018, a separate survey last month of 6,000 millennial renters by Apartmentlist.com found.
For Americans of all ages, buying a home rather than renting is 36% cheaper nationwide, Trulia concluded. That’s the biggest difference since 2012 when it was 38% cheaper to buy than rent. For those aged between 25 and 34, it’s only 23% cheaper than renting. One caveat for all would-be buyers: Interest rates have returned to near historic lows of 3.85%, after climbing to 4% last year, but many economists expect rates to go up again within the next 12 months. An increase of 25 to 50 basis points could push mortgage rates to a range of 4.15% to 4.4%, he says, but rates would have to nearly double to about 6.5% to equalize the buy versus rent equation for potential young adult buyers.