Photo: Robert Clark
Stagnant wage growth and rapidly rising home prices have made it harder for some Americans to save for a down payment, according to Zillow’s latest Housing Aspirations Report.
Saving a substantial amount every month for a down payment is especially challenging for some would-be buyers who are already stretched thin.
“Saving up for a down payment can be tough, especially when the cost of everyday life outpaces the money you put into the bank,” writes Zillow director of economic research and outreach Skylar Olsen, in a statement.
In 1998, it took the typical American over five years to save for a 20 percent down payment. But since then, home values have grown nearly twice as much as incomes have — increasing by nearly 99 percent, while incomes have risen by about 53 percent.
For median income workers putting away 10 percent each month, it would now take just over seven years to save for a 20 percent down payment on the typical home.
According to Zillow’s analysis, it hasn’t taken this long to save for a down payment since early 2008, shortly after home values hit their highest point during the housing bubble.
And although home value appreciation has begun to slow in recent months, home values are still rising faster than wages.
“The simple fact that home values have far outpaced income growth, lengthening the time needed to save for a down payment, contributes to Millennials’ struggles to enter homeownership,” says Olsen.
Some 43 percent of the typical down payment comes from saving over time. Buyers rely on other sources for the rest, such as the sale of a previous home or a gift from family or friends.
Unsurprisingly, it takes longest to save for a down payment using only savings in white-hot San Jose, California.
Although San Jose has the highest median household income of the 35 top markets in the report, $118,061, it would still take nearly 22 years of saving to come up with a 20 percent down payment for a median home valued at $1.2 million.
On the flip-side, it takes just under 5 years to save for a 20 percent down payment in Pittsburgh, Pennsylvania.
“Even if you don’t have plans to buy a home in the next year or two, it’s not a bad idea to start setting aside savings for a future home purchase. It’s also important to remember that there are many options for mortgages requiring less than 20 percent down,” says Olsen.