Photo: Robert Clark
While deciding to buy a home is an enormous financial decision, money is not the only factor that determines whether or not a household decides to buy a home, or even when to buy.
A household’s stage of life may be just as important, and perhaps even more so, than its finances, says a recent report by the listing site Zillow. To determine stage of life, the US home listings site looked criteria like if households were established in the workforce or married and planning a family.
And, with the recent changes to US tax laws diminishing the financial incentives of owning a home, the determining factor to buy or not to buy may now be even less of a financial one.
To prove the point that a household’s stage of life in crucial in determining whether or not to buy a home, Zillow analyzed homeownership rate data of single, married or partnered households of varying ages.
It found that, in general, married or partnered households have higher homeownership rates than single people. Further, older households also tend to have higher homeownership rates compared to younger ones.
But Zillow says “income doesn’t significantly impact homeownership rates within any subgroup except couples under the age of 35.”
Dual income older couples earn around $44,000 more annually than older couples with only one income. However, the difference in income only translates to an increase of one percentage point in their national homeownership rate.
And the results are similar for younger households.
By adding an additional earner (i.e. a roommate) to a young single person’s household, the median income grows by about $39,000 but the homeownership rate falls by one percentage point. And, adding a second earner to a partnered couple over the age of 35 produces similar results — a boost to the median income by $44,000 and an increase of 0.4 percentage points to their homeownership rate.
But the math is quite different for married or partnered couples under the age 35.
By adding an extra earner, the household sees an increase of about $33,000 annually and 13 percentage point gain in their homeownership rate.
“There’s a clear distinction in homeownership among most of the life stage groups, indicating that people at different stages of life value homeownership differently but the income factor within those groups makes little difference. Why? From this angle, whether people buy a home or rent is dominated by life stages – but what they can afford and save for is determined by income,” Zillow says in the digital release.
Income really comes into play when looking at downpayments. Dual income partnered households have the advantage of being able to save more money at a faster pace than a single earner. And age is also a major factor.
Assuming a household is saving 10 percent of its annual income to buy a median priced home, it would take 3.6 years for a dual-income household over 35 to save for a 20 percent downpayment.
By contrast, it would take a single person under 35 years old 12.4 years to save for the same downpayment.
National home values have continuously been outpacing income growth in recent years, and this disparity is seen more dramatically in younger households.
The median income for one income young partnered households increased by only 20.4 percent, well below the almost 53 percent increase in median income for partnered households between 2000 and 2016.
“People will continue to break into the market when and how they can by buying cheaper homes, homes farther out, smaller homes—whatever is feasible. The rub is that as US housing markets continue to burn hot, the feasible options become harder to find for more of us,” says Zillow.
Click here to read the entire release.