A Creative Solution to the Housing Affordability Crisis

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Written by Guest | Last Updated October 31st, 2019
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Map of states: saving for a down payment takes an average of 27 years
Image credit: Unison

Guest Post by Brodie Gay, Vice President of Research at Unison

America is experiencing a homeownership and housing affordability crisis, particularly in our most densely populated urban corridors. Rising home prices, stagnant wages, record student debt levels, and high medical costs, among other contributing factors, have converged in recent years to push homeownership out of reach for many aspiring buyers.

Yet, the American Dream is still very much alive the vast majority of today’s renters (72 percent) would still like to buy a home in the future, and skipping avocado toast won’t get them there. It’s a new world that requires fresh solutions.

Unison, North America’s leading home co-investment partner, recently released its 2019 Home Affordability Report, which provides an in-depth look into home affordability across the country. It’s based on the Unison Home Affordability Index, which estimates how many years it takes to save for a 20 percent down payment in hundreds of metro areas and thousands of cities, given the median salary and median home price for each market.

The analysis found that Americans earning the median income and trying to buy a median-priced home will need 14 years, on average, to save for a 20 percent down payment. At this rate, it means that many prospective millennial homeowners won’t achieve the American dream until well into their 40s.

Why affordability is a growing challenge

Your parents’ generation didn’t have to wait 14 years to purchase a home. Yet the homeownership rate for millennials — the largest generation in U.S. history — is lower than that of their parents and grandparents at the same age.

Over the past few decades, several factors have converged that make home affordability a greater challenge for today’s buyers. Once you adjust for inflation, today’s average real wages have the same purchasing power as 40 years ago. What’s more, only half of today’s 30-year-olds earn more than their parents did at the same age.

A stable, steady income is critical not only to save enough for a home purchase but also to keep up with the ongoing monthly payment. But a widening gap between home prices and incomes means affordability is more of a challenge. In the United States, the monthly mortgage payment on a median home grew twice as fast as incomes from 2017 to 2018.

On an individual level, climbing costs outside of real estate also contribute to the challenge. Among non-homeowners, 83 percent cite student loan debt as the reason they are waiting to buy a home. That is contributing to a seven-year delay in buying a home among today’s renters.

Medical-related debt and costs create another challenge. A family of four’s healthcare costs increase $100 every month, and it’s been sitting at that rate for more than a decade. To cover these ever-rising costs, Americans collectively borrowed an estimated $88 billion last year.

All real estate is local

While nationwide the average length of time needed to save for a 20 percent down payment is 14 years, this varies drastically by individual city.

In the least affordable Los Angeles, a resident at the median income level needs more than four decades (43 years) to save enough to make a 20 percent down payment on a home. With a median home value of over $600,000 but a median income $3,000 below the national average, a typical Los Angeles resident won’t be able to afford a home until 2061.

A few hundred miles won’t make much of a difference, either. While Los Angeles leads in longest to save, San Francisco is the most expensive city: With a median home value topping $1 million — the highest in the nation — a San Francisco resident faces a monthly mortgage payment of $5,052, requiring annual income over $200,000.

In fact, all four of California’s largest cities require more than a quarter-century to save for a 20 percent down payment, with San Diego and San Jose coming in at 31 years.

The east coast doesn’t fare much better, where it takes 36 years in New York City and Miami, and 30 years in Boston. In fact, far too many city-dwellers measure their time to buy a home in decades, not years.

It’s not all bad news, though. Many cities, particularly those in middle America, support income levels that keep pace with home values. Prospective buyers may consider making these metro areas a destination.

In Louisville, Indianapolis, Kansas City, and Columbus it takes 12 years to save for a down payment — two years less than the national average. In Wichita, Kansas, buyers can shave another year off their savings journey where 11 years are needed to save. Among major population centers, Detroit is most accessible, requiring seven years to save for typical wage earners.

While the Unison 2019 Home Affordability Report certainly shows it’s a tough time for home buyers in many major cities, owning a home is still a great investment. From 2017 to 2018, median home values nationwide grew 6 percent.

Tackling affordability

If you’re one of the 72 percent of renters who still longs for a home of your own, there’s no need to give up. There are lots of options out there, from federal, state, and local programs to the “bank of mom and dad,” and many people buy with down payments less than 20 percent.

A newer solution is home co-investing, where Unison invests alongside you, so you can double, and in some cases even triple your down payment to get your mortgage to a conforming 80/20 loan-to-value while lowering monthly payments and substantially increasing buying power. While a 20 percent down payment isn’t required for a home purchase, it does make ongoing homeownership more affordable and a lot less risky. Loan-to-values above 80 percent default at a substantially higher default rate, in part because buyers who are unaware of co-investment opportunities are instead taking out second loans, which carry their own interest accumulation and monthly payments, not to mention the private mortgage insurance (PMI) your lender will require you to take out which further increases monthly borrowing costs and payments, putting additional pressure on new homebuyers.

While the challenge is real and daunting, prospective homeowners should not give up on their dream and should instead investigate the alternatives to traditional lending that may be available to them as it may get them into their forever home a lot sooner than they may think possible.


Brodie Gay is the Vice President of Research at Unison, a San Francisco-based company that is pioneering a smarter, better way to buy and own your home. We are a team of financial and real estate professionals who are committed to helping home buyers get the home they want, and homeowners finance their life needs without adding debt. For additional information, visit www.unison.com or follow us on Facebook, Instagram, LinkedIn, Twitter, and YouTube.

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