If you’re a first-time homebuyer looking to stash away savings for a down payment, don’t be surprised if it takes you a very long time. How long? How does 8 years sound?
According to Skylar Olsen, the principal economist for Tomo Networks, the latest data shows that it will take the average American household 7.9 years to save up for the 20 per cent down payment, if they can commit to putting away 10 per cent of their income per month for the task. That rate is up .8 per cent from the pre-pandemic number of 7.1.
It’s a daunting number to process, especially when you consider that monthly appreciation values — the increase in the cost of a home due to rising value — jumped to 2.1 per cent in June. That same month, appreciations were up 28 per cent for the year – a record-breaking figure.
Those two numbers can have a major effect on a first-time buyer’s ability to land a house. Olsen breaks it down like this, using Boise, Idaho as her example city:
A local Boise resident has saved 10 per cent of their income every month, and at the end of May, was ready to put down the required 20 percent on a house. The average price of a Boise home in May 2021 was $430,000.
All good, right?
Housing prices skyrocketed in June. The average price in Boise jumped to $450,000. Using a median local income of $71,400, that means said resident would need to come up with another $4,000 – the equivalent of more than six months of saving at a rate of 10 per cent – to keep up with the acceleration of rising prices.
Boise wasn’t the only city experiencing massive appreciation increases.
Austin, Salt Lake City, Phoenix and Seattle all saw jumps of over 3 per cent in June. Since the beginning of the pandemic, the years-to-save – again, based on Olsen’s formula of 20 per cent down and saving 10 per cent of local income per month – jumped by over two years in both Boise and Austin.
For Boise, the time required went from 9.3 to 12.5 years. In Austin, 8 years turned into just over a decade – you now needed 10.1 years.
If you’re on the hunt for less years-to-save, look inland. Cities like Rochester, NY, (5.7 years), Pittsburgh (5.8), Oklahoma City (5.8) and St. Louis (6.0) may seem far more realistic than locations like San Diego (16.8) or Los Angeles (19.2).
But it isn’t all doom and gloom. Based on Tomo Network’s analysis, there are indicators that prices should stay below the peak potential buyers experienced in June. The rate of new listings increased in July, home sales slowed, and more listings were appearing with a price cut. Interest rates on mortgages also remain at record lows to combat the rapid appreciation levels, which means that payments have stayed relatively stable through the pre- and post-pandemic period.
As migration patterns continue to fluctuate throughout the country due to COVID concerns, working from home, or other reasons, years-to-save is another valuable number to take into consideration for first-time homeowners.