Trying to save for a home in Miami-Dade County? You better start now.
With home prices rising and wages lagging, it could take a young worker 12 to 17 years to squirrel away enough money for a 20 percent down payment on a home, according to a report released Wednesday by the online real-estate company Trulia.
Miami had the 12th-longest projected wait out of 100 major metro areas examined in the report, making it one of the nation’s least affordable housing markets.
Fort Lauderdale, where housing is more affordable, ranked 50th. But that’s still about a nine-year wait to save up.
“Fewer and fewer younger folks have enough capital to muscle up a down payment,” said Mitchell Friedman, a partner at Miami-based affordable housing developer Pinnacle Housing Group. “It used to be that people could go to their parents and get help with the money, but because prices are so expensive now, the down payments have gone way up, too.”
If young people are struggling to buy a first home, that can have a ripple effect on the whole housing market, Friedman said. Homeowners who want to sell their starter home won’t be able to find a buyer and, in turn, won’t be able to finance the purchase of a second home.
“If they want to move up to a larger house but can’t sell the house they own, that just kills the market,” Friedman said.
Many people don’t put 20 percent or even 10 percent down. The Federal Housing Administration offers mortgages with 3.5 percent down to first-time homebuyers in South Florida who have decent credit and want to buy homes worth less than $345,000. Low-income buyers looking for starter homes who have a steady job and meet other requirements can also qualify for 3 percent down loans from Miami-Dade County.
But middle-class buyers who want the security and low monthly payments of a 20 percent down loan may struggle.
The Trulia study focused on people between the ages of 25 and 30 — young, millennial, first-time homebuyers.
“That’s the age group at which households really start to think about buying a house,” said Ralph McLaughlin, a housing economist at Trulia.
The company then used projections for median income and median home sale prices to calculate how long it would take young locals to save for a 20 percent down payment. It assumed that people would put away 10 percent of their income per year, that wages would grow as workers climbed the career ladder, and that home values would continue to rise.
It also separated people with a college degree from those who never graduated.
In a city with a wide income gap like Miami, getting a college degree can make a big difference in starting salary — and ability to purchase a home. Young households with a bachelor’s degree in Miami make about $65,000 per year, Trulia found. Non-graduates earn about $39,000.
Even though they may have to pay off student loans, young Miamians with a college degree could save up enough for a down payment in 12.8 years, while it would take those without a college degree 17.3 years.
“In the most expensive markets, if you want to put 20 percent down on a home, the only way you’re really going to do that is if you have a college degree,” McLaughlin said. “The income gap keeps widening as you get older.”
The tight housing market has also driven up the price of rentals, making saving more difficult.
The median rent for a two-bedroom apartment in Miami soared 7.7 percent over the past year to $2,700 per month, according to a recent study by ApartmentList.com. That’s one of the fastest rates of growth in the nation.
As real-estate prices keep going up, people without a college degree are left further behind.
A 20 percent down payment would cost college graduates in Miami about $87,100. But because it would take non-graduates longer to save on their lower wages — and home values would rise in the meantime — they would have to put about $98,100 down.
While a 20 percent down payment is traditional, some buyers with good credit opt to pay 10 percent. Because it’s possible to save more quickly for a smaller down payment, the inequality gap narrows.
It would take college graduates who live in Miami 6.8 years to save up a 10 percent down payment. Non-graduates would take 7.3 years.
But local banks have realized that even a 10 percent down payment is not realistic for some households.
TD Bank has a mortgage program called Right Step that allows qualified buyers with low or moderate incomes to put just 3 percent down on a home, said Ernie Diaz, TD’s regional president for Florida.
The program does not require borrowers to pay mortgage insurance, as is common for private lending programs with low down payments. Right Step has grown 60 percent in total loans since its first year in 2013, although TD declined to release loan volume.
“A lot of banks are trying to do similar programs because they’re recognizing the same problem in the community,” Diaz said.
But the programs don’t always catch on right away.
Sabadell Bank offers 10 percent down loans with no mortgage insurance to qualified low-income buyers.
The program launched last year to little notice, said Howard Levine, executive vice president of lending and treasury management at the bank.
Levine said Sabadell is working with local community groups to better market the loans.
“It hasn’t come together yet,” he said. “I don’t think most people know we have it.”
Cities where it takes longest to save for a 20 percent down payment
Years needed to save with college degree
Years needed to save without college degree
Orange County, Calif.
Ventura County, Calif.
Cape Coral / Fort Myers