Dana Bergman signs over a third of her take-home pay to a landlord in Los Angeles. Jonathan Karadimas just hopes he can pay off his student loans before he retires — a date the 26-year-old New York resident won't hit for nearly four decades.
These young adults are a continent apart, but they share a troubling condition with many other 20- and 30-somethings: They’re renters, tenants in their own lives. Weighed down by high student loans and low credit scores, squeezed by rising rents and required down payments, homeownership is a distant goal, and economists worry that these millennials are missing out on a crucial opportunity to build wealth.
Bergman, who works in her family's construction business, has resigned herself to looking for a home somewhere with cheaper prices, like Texas or Arizona. "I would love to buy a house, and that's pretty much why I’ll probably be leaving L.A.," she said. "It’s not feasible."
Bergman splits her $2,200 monthly rent with a roommate, and previously rented a single 10-by-12-foot room for $900 a month. "The cost of living is ridiculous out here," she said.
Karadimas, who works for a technology company and pays around $1,800 a month for his studio apartment in Manhattan, along with $600 a month toward the nearly six figures in student loans he incurred while earning his master's degree, said he has no choice but to defer home ownership.
“Eventually I’d like to own something, but I know the cost of doing that in New York is tremendous,” he said.
“When your loan debt is almost as much as a small house in the suburbs, it would be difficult to (buy),” he said. Karamidas said he enjoys his job, likes being able to walk to work and have his social circle nearby. “Renting just makes the most sense for me right now.”
A lot of other millennials are coming to the same conclusion. Harvard University's Joint Center on Housing Studies finds that homeownership is at a two-decade low. Household formation is also down, according to research from the Urban Institute. By 2030, only 38 percent of millennials will own homes, compared to 46 percent of baby boomers at that stage of their lives, the group predicts.
"There is a change in attitudes," said Laurie Goodman, director of the Urban Institute's Housing Finance Policy Center. "There’s that subtle change. It’s part choice and part economics."
It's a decision with long-term ramifications, she said. "With renting, you’re clearly not accumulating wealth," Goodman said.
While rents are rising, a function of more demand and little new supply being built, incomes are stagnant. That means tenants — especially young ones also saddled with student loans — are losing ground.
"Having student loan debt may present a challenge as they try to save for a down payment," said Joanna Rini, an extension educator in Family and Consumer Sciences at Ohio State University. "Rental rates are going up and… the going rate for rentals might represent some cash flow issues when they look to save for a large purchase."
In 2014, 46 percent of renters between 25 and 34 years old spent more than 30 percent of their income on rent; nearly 20 percent paid more than half of what they made, according to Harvard.
With so much money going to rent, these young adults have little left to put toward a down payment, which is a problem since homes are typically Americans' largest assets, and a key way families pass on wealth through the generations.
"I think the biggest problem is the down payment, and I think that’s the big divider that’s going to bifurcate the market among millennials," said Selma Hepp, chief economist at real estate site Trulia. "That may lead to further inequality among that group."
Even in parts of the country without notoriously high costs of living, getting that down payment is an uphill battle.
Scottsdale, Arizona, resident Lisa Cortese is putting off dental appointments and getting her brakes fixed, but saving for a down payment on a house is a moving target in a market rife with bidding wars and investors plunking down cash to snap up the most affordable homes.
"It’s been something we’ve been trying to save up for for a long time," said the 28-year-old, who plans to buy a home with her boyfriend so they can start building equity rather than paying more than $900 a month in rent. "That’s something I think about all the time," she said. "I just want to go to the dentist."
Cortese might turn out to be one of the lucky ones. After finding out they qualified for down payment assistance, the couple made an offer on a house a few weeks ago and are now working their way through the buying process.
But even young adults who manage to save enough for a down payment may find that they're shut out of the housing market because they can't qualify for a mortgage in the post-real estate crash market. A study by credit bureau TransUnion finds that fewer than 20 percent of the 7 million people whose credit was damaged by the mortgage meltdown could qualify for a mortgage today.
"There's a large number of these consumers … who we think are not going to be qualifying, at least in the near future, and that’s due to changes in the underwriting guidelines," said Joe Mellman, vice president and head of TransUnion's mortgage group. In 2006, nearly half of these consumers had credit scores below 620 — not a big deal back then, but a deal-breaker today.
Unfortunately, the window of opportunity may be closing for many would-be homeowners. Rock-bottom interest rates are a huge benefit for people buying real estate today, but those rates will inevitably rise, and lock out a significant number of prospective buyers.
Real estate data analytics company HouseCanary finds that nearly a third of so-called millennials won't be able to afford their mortgage payments if interest hits 6 percent, assuming today's home prices are the same.
"You’ve got this imbalance that’s likely to be further exaggerated in years to come … if we don’t see some sort of reversal in the trend," said J.P. Ackerman, the company's president. "We see a material decline in those who can even consider buying."
Millennial renters are acutely aware that there is a ticking clock on their opportunities.
"I just turned 30," said Bergman, who is working to improve her credit score to make her a better mortgage candidate. "How can I make this work?"
The only answer she can see is to leave a city she has called home for the past six years. "My plan is pretty much to take my network, take my education ... and go somewhere where the cost of living is less."