Study Shows 'Targeted' Affordability Measures Necessary

According to a new report, the housing market is not doing enough to bring in Millennials, as traditional affordability measures are skewed toward existing homeowners.

First American's analysis says, “Millennials are the largest generational group the U.S. has ever seen," a population of about 84 million, "and the largest segment of Millennials will turn 30 in 2020, the prime age for buying a first home.” Yet, affordability measures should focus on housing supply, rather than Millennial buying power. Current measures emphasizing buying power, "offering a somewhat misleading perspective for potential first-time buyers.” First American found that nominal home price appreciation added upward pressure on home prices in 2018, and that home prices will likely appreciate again in 2019, HousingWire reports.

In order to prevent Millennials from rejecting homeownership, potential first-time home buyers can benefit from a more targeted examination of affordability, according to First American.

“Since first-time homebuyers are nearly certain to be currently renting, our estimate of a first-time buyer’s house-buying power is based on the median renter’s income,” First American writes. “The renter house-buying power estimate also takes into account the prevailing 30-year, fixed mortgage rate, and assumes one-third of the first-time home buyer’s pre-tax income is used for the mortgage.”

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