Homeownership used to be a rite of passage for young people entering adulthood, but that seems to no longer be the case – at least in the San Jose area. A new study finds Millennial homeownership in San Jose is among the lowest in the nation.
Millennials (those born between 1982 and 2004) are the now the largest generation of adults, and therefore the center of attention for the U.S. housing market. The oldest cohort of Millennials are starting to reach their early- and mid-30s, and at least theoretically, should be approaching financial stability and considering homeownership.
But data shows that Millennial homeownership is on the decline. Some have even dubbed Millennials the “renter generation.” This is especially true in San Jose, where only 20.2% of Millennials have purchased their own homes. The San Jose-Sunnyvale-Santa Clara MSA (Metropolitan Statistical Area) ranks fifth to last in the nation for Millennial homeownership, behind only Los Angeles (17.8%), Honolulu (18.3%), San Diego-Carlsbad (19.8%) and New York-Newark (19.8%).
San Jose stands out, though, for its stark drop in Millennial homeownership. Nowhere in the country has the rate of homeownership among 18- to 35-year-olds dropped faster over the past decade than in San Jose. Between 2005 and 2015 (the most recent data), homeownership among young adults dropped by a staggering 34.5%
There are a number of factors driving the decline in homeownership among San Jose Millennials. The most obvious is the cost of housing. The average home value of homes purchased by San Jose Millennials is a stunning $737,077. Although an astronomically high figure, at only represents 73% of the San Jose MSA’s average home value.
In order to afford one of these homes, San Jose Millennials must save up for a down payment – an especially high down payment. According to the same study, San Jose Millennials will need to save $147,415 to afford a 20% down payment on a property – which takes the average San Jose Millennial 27.9 years to do based upon the area’s median household incomes. Compare this to Youngstown, Ohio – the most affordable metro to save for a down payment – where the average down payment is under $20,000 and only takes 6.9 years for Millennials to save.
Given these startling numbers, is it any wonder more young adults are foregoing homeownership in lieu of renting a San Jose apartment?
Although real estate prices are high, these realities make San Jose an attractive area for apartment owners to invest. Not only are more young people opting to rent, but many of these young people are drawn to the area by high-paying tech jobs so they have more disposable income than the average person. As a result, they’re able to pay more for rent, which is evidenced by the rising rents San Jose property managers are able to collect.
San Jose has experienced some new apartment construction in recent years, but it’s nowhere near enough to keep up with demand. As a result, we suspect investors and San Jose property managers will continue to see rent appreciation for the foreseeable future.
For all of these reasons, San Jose’s strong rental market fundamentals make it an attractive place for investors who can afford the up-front costs associated with acquiring rental property in this otherwise expensive housing market.