Last weekend, I hosted an open house in Kalorama. My property, a newly listed studio condominium, much larger than your average micro-efficiency, was full of charm and priced just above $220,000, very reasonable for the Kalorama market. This was truly a first-time buyer’s dream place. With each passing walk-in, I made two observations. First, half of my walk-ins were middle-aged investors hoping to purchase a property to lease to young D.C. residents. Second, the other half of my visitors were young millennials who could barely fathom the concept of home buying in Washington, D.C. Clearly, there was something lost in translation about purchasing in Washington, D.C.
Last week, Harvard University released a report from its Joint Center for Housing Studies that documented the proportion of renters in the 85 most populous metro areas compared to those that could afford to buy in those markets. The results, 44 percent of all renters aged 25-34 (the “late millennials”) can afford to purchase a similar property in the D.C. area. Compared to other large cities such as New York and San Francisco, where 30.3 and 17.1 percent of older millennials are able to buy respectively, the D.C. metro area seems to be a better place for late millennials to buy.
These findings are similar to reports from early 2014 when Trulia reported that buying property is overall 34 percent cheaper than renting in the D.C. metropolitan area. Within the city itself, it is 27 percent more costly to rent than to purchase property. Sure, the argument can be made that the Washington, D.C. metro area is quite expansive when compared to that of other large metropolitan areas. However regardless of its metro area, Washington is still seeing a discrepancy between those who are able to buy yet choose to rent.
The question then must be why are later age millennials — those who have established steady careers and stable salaries — not purchasing property in a marketplace they can afford? Both of these reports cite that student debt and high standards of living can scare first-time homebuyers away from the dream of purchasing property. Thus, a perpetual cycle is in place for the D.C. market; that is, local developers continue to invest in rental property that is then rented to tenants who can afford to purchase a similar property at the same cost or less.
Standard fears of home buying still linger in any conversation with a first-time homebuyer: fear of return on investment, finance confusion, anxiety with making a big purchase and many other objections all buyers have when purchasing their first property. However, each of these fears, while rational and normal, can be easily addressed.
Currently, interest rates on mortgages are still quite low at 4.3 percent. Many later millennials may not remember a time when rates were much higher (for some, as high as 10 or 11 percent). While interest rates are low, young buyers should take the time to investigate the option of purchasing property.
Any young professional who is curious about purchasing property should consider speaking to a mortgage lender or real estate agent to understand the real estate market and buying process or, even simpler, downloading a free mortgage and finance calculator to understand what a payment on a property may look like. Yes, the thought of purchasing your first property can be daunting; however, when broken down and fully understood, you may be surprised by what you find.
Tim Savoy is a real estate agent with Coldwell Banker Residential Brokerage, Dupont Circle. Tim specializes in working with first-time homebuyers. Reach him at 202-400-0534 or firstname.lastname@example.org.
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