When Joseph Chen thinks about buying a house in the Los Angeles area, one word comes to mind: daunting.
The 23-year-old software developer moved to Orange County a year ago after graduating from college, and he’s been paying the rent on an apartment he shares with a roommate for prices that he calls “crazy.” But according to Chen, his prospects for buying a home in Los Angeles aren’t much better.
“I would love the idea of having a home — I want a space of my own,” Chen said. “But it’s hard to even start thinking about buying something worth hundreds of thousands of dollars.”
Chen is not alone, either as a renter facing rising costs or a potential homeowner facing rising mortgage costs. But as a Millennial in his early 20s, he faces additional issues entering the Los Angeles housing market, from trouble saving up to uncertainty about the future.
One study from Apartment List found that it could take almost 21 years for millennials in Los Angeles to save up enough for an average 20 percent down payment in the city, based on their own estimates of how much they could save per month. This puts the L.A. area behind only two other cities in home affordability for millennials: San Jose, Calif. and Austin, Tex.
The reasons for this phenomenon go beyond high real estate values, which rose 8.4 percent in the past year for a median value of $629,900, according to Zillow.
For millennials such as Stryker Watts, a 26-year-old marketing specialist currently renting a loft in Downtown to be closer to his job, saving is difficult because of rising rent prices that he says currently eat up more than half of his paycheck.
“When I first moved to LA … I thought I’d be able to buy in four years,” Watts said. “But I just got my lease renewal letter last week, which shows my monthly rent going up over 18 percent. That’s a greater increase than any raise I’ll get at work.”
For others, like 23-year-old Zev Hurwitz, it’s about location. Hurwitz, a graduate student in public policy at UCLA, started seriously considering buying a house after getting married earlier this month. The issue, Hurwitz says, is that homes in desirable neighborhoods can easily cost over $1 million. He’s even considered moving out of the city to take advantage of low prices in cities like Detroit, Mich.
“The best year I had financially was the year I spent working while living with my parents — banking nearly all the money I earned,” Hurwitz said. “But to even buy a house on my parents’ block … I’d have had to live with them for another five years just to make the down payment. No way my wife is getting on board with that.”
Along with high costs for both rent and real estate, millennial earning, spending and saving habits set them apart from older home buyers, says financial planning expert John Barcal.
Barcal, who teaches accounting at the University of Southern California, says more academic choices have led some members of this generation to pick careers that don’t earn them enough to meet their long-term housing goals.
“If you’re trying to buy a house, you’re better off going into accounting or engineering than philosophy,” Barcal said.
Barcal added that not everyone is ready to buy a home, even if they want to. It’s possible to purchase a house with a down payment of less than 20 percent — but the less a home buyer has saved up, the riskier it gets, potentially trapping them in a high-interest-rate mortgage that can be even more difficult to pay off.
That’s why, he says, it’s crucial for millennials to budget — thinking ahead about where they hope to be financially in the near future and what their goals are when it comes to buying or renting.
Jamie Tian, a realtor who’s sold homes in the L.A. and Orange County areas for the past five years, agrees. At 26, she already owns a home because of what she calls a “very aggressive” savings plan, where she spent next to nothing for two and a half years. Tian says this can be difficult, though, for many of her peers, who have to deal with student loans, car payments and other expenses on top of monthly rent.
But despite the challenges, some millennials are still trying to put down roots in Los Angeles. Tian says that about a quarter of potential home buyers she sees are millennials.
“It can be done if you really want to put your mind to it,” Tian said. “But you have to have a plan.”