Study: Moving Back in With Parents Helps Young Adults Save Down Payments

Study: Moving Back in With Parents Helps Young Adults Save Down Payments

We’ve all heard the news about homeownership being unattainable for young adults. A new HotPads® analysis  concludes that rising rents are making it harder for renters to save for a down payment. The solution? Move back in with Mom and Dad.

HotPads, a rental search platform that is part of Zillow Group, found that the median home value is $225,300, meaning a 20 percent down payment is about $45,000. If a renter earning the median annual income saves 16.5 percent of their income after accounting for housing costs each month – the typical rate of savings for U.S. renters – they would have enough saved after eight years.

With the typical renter spending about 34 percent of their income on housing, one can see how moving in with parents makes sense. If a renter making the median income eliminated their housing expenses and increased their monthly savings proportionally, they would have enough saved for a 20 percent down payment on the median home after about five years – and almost three years sooner than those who pay rent and save for a down payment simultaneously.

“Coming up with a down payment is often the biggest hurdle for first-time home buyers,” said Joshua Clark, economist at HotPads. “The challenge has become all the more difficult because of rising rents and home values, which make savings harder and the necessary down payment bigger.

While living independently may be appealing, for many it’s not worth the prospect of pushing home ownership further into the future. Living rent-free with family is an increasingly common way young adults can accumulate the pot of savings necessary to purchase their first home.”

Moving in with family can make it easier for renters to save, particularly in expensive markets where housing costs account for a larger share of incomes. In San Jose and San Francisco, renters typically spend more than half their income on housing, and saving for a 20 percent down payment could take more than 38 years for a renter with the median income.

While a 20 percent down payment is often a goal, 60 percent of first-time buyers end up putting down less than 20 percent, according to the 2018 Zillow Group Consumer Housing Trends Report. A typical renter looking to put 10 percent down on the median home ($22,530) needs four years to save for a down payment, while someone with the typical renter income and no housing expenses typically could save this amount more than two years earlier, after two years and seven months.

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After earning her bachelor’s degree in journalism at the University of Central Florida, Tracey set out in the real world at Florida Realtors in 1994 as a communication assistant, working her way up to editor in chief of Florida Realtor magazine. In 2004, she left the association to start her freelance writing and editing business. One of her first clients was REAL Trends, and she started working for the organization in 2005. In 2014, Tracey was promoted to editor in chief of publications for REAL Trends. She handles the writing and editing of all REAL Trends publications and marketing materials, including LORE Magazine, the REAL Trends newsletter and the blog. She is also the primary podcast interviewer where she conducts interviews with top real estate industry leaders and affiliated industry leaders. Tracey is married with two children.

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