The Millennial’s path to home ownership in Austin

Rising Central Austin home prices continue to make it difficult for the majority of Millennials (those born between 1981 and 1997) to buy a home in Austin.  

The same is true on a national level.  According to the National Association of Realtor’s chief economist, sales to first-time buyers and the homeownership rate for young adults under the age of 35 remain depressed at levels not seen in decades even though we are seeing low mortgage rates, increasing rents, and low unemployment levels among those with a college education. 

Yet, last year’s research from the National Association of Realtors (NAR) showed that Austin is the best market in the nation for millennials to purchase a home. According to NAR Austin had the largest number of millennials living in (18%) and moving to (29%) the area than any other city in the nation. No other Texas city made the top 10 list in 2016. Even Forbes named Austin the second best U.S. city for young professionals in 2017.

So what’s the problem?   

In short, low wages, high student loan debt, a lack of savings, and limited affordable housing. 

Consider these numbers:

• Payscale reported in the fall of 2016 that the average Austin millennial’s annual income was $48,700.
• Those same Millennials are carrying around $16,324 in debt according to a December 2015 report from the National Federal Reserve Bank of Dallas.
• The average budget of a first-time Texas homebuyer is only $150,000 according to the Real Estate Center at Texas A&M University.  
• The median Central Austin home price was $460,000 in June of 2017.  

Renting isn’t much better.  The average rent in the Austin metro area is around $1,195 a month for a two-bedroom apartment and $799 for a one-bedroom apartment.  With rental rates that high, you'd have to make about $23 an hour according to a June 2017 report by the National Low Income Housing Coalition. That equates to around $47,840 per year in income, essentially three times the state’s minimum wage of $7.25.  The average Austin millennial’s income is only slightly above that annual amount. 

So is home ownership even a possibility for Austin’s Millennials?   

Absolutely, with some careful planning.   Consider as an example, a make-believe person named Smith who has been renting a 2-bedroom apartment for $1,195 a month. 

If Smith earns $48k a year, has minimal to no debt and has been working steadily at the same job for 2+ years, Smith will likely qualify for a home mortgage of $154,000.

But here’s where the planning comes in.  Smith will need to save at least 5% for a down payment (the equivalent of $7,700) + estimated closing costs (around $7039.30).  Put those together and Smith needs to have at least $14,739.30 saved up to buy that $154,000 home.   You can read our suggestions on saving for a down-payment here.

Searching for affordable homes

Now that Smith has saved enough money for a down-payment, it’s time to start looking for homes.  Smith’s Realtor runs a search and finds 15 properties available under $154k as of September 1st.

That list of 15 possible properties gets narrowed down even further after factoring in Homeowner Associations (HOA) costs and other issues.  Now Smith has 8 properties to choose from – all condominiums.  Two of the 8 need substantial work, and after saving all that money for the down payment, Smith doesn’t have the cash to invest in the fix-up process. 

That leaves 6 potential homes under $154,000.

What you can buy for $154,000

All 6 of the properties are pretty similar, ranging between 950 square feet and priced between $127k to 145k.  There are two units that are close to Central Austin.  One on Penny Lane just north of Steck off Burnet Road and another on Jamestown on the East side of 183 between Lamar and Ohlen Road near the Target store.  The other 4 choices are in Anderson Mill on Mellow Meadows close to 183 and 620. None of them are in the desired urban core…

Becoming a homeowner

Eager to own a home, Smith compromises on the desire to live in the urban core and choses the least expensive unit on the market.  Because the property has been on the market for 98 days, Smith’s Realtor was able to negotiate the price down so that Smith only pays 95% of the list price of $127,775.

With the 5% down payment, Smith’s new mortgage is $896.61 + $246 in HOA fees = a monthly payment of $1,142.61.

Smith lives a little further out, but is saving $52 a month on housing costs.  Plus, Smith owns a home that will likely appreciate in value, and later become a tool for Smith to build future wealth.  

Smith’s path isn’t easy, and it isn’t perfect.  But it’s a start.

It brings us joy to help first-time homebuyers navigate the path to home ownership.  We’d like to help you too.  Click this link to set up a no obligation, no BS consult on how to make  smart investment in your future.  

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