Real estate economists who project into the future don't always like what they see. That's because many younger people are less likely to buy a home than were their parents at a similar age.
Lawrence Yun, chief economist for the National Association of Realtors (realtor.org), says the homeownership rate for young adults under 35 peaked in 2005 at 43 percent. As of the first quarter of this year, that rate had slumped to just 36 percent.
While it's true that numerous young adults would love to buy a property, Yun says many are inhibited by financial factors. These include high levels of student debt, slow wage growth and tight credit conditions. What's more, in some popular metro areas -- such as New York and San Francisco -- they face the barrier of extremely high housing costs.
To help make home ownership possible, some young adults have parents willing to step in. Ashley Richardson, a real estate agent who's sold homes since 1993, says parental help may be offered as a spur to young people to finally move out of the family home.
Indeed, she's worked with a few boomer-age clients who've decided to downsize just to push their grown children into independent living.
"These people are deliberately buying too small a place for their kids to continue living with them. Otherwise, they would stay put in the family home," Richardson says.
How do parents typically help their financially challenged offspring obtain a property? One common approach is for parents with good credit to co-sign on a mortgage, meaning they accept financial responsibility to ensure that payments are always made. Another, much rarer, approach is for the parents to give the children a large monetary gift- -- perhaps drawn from the proceeds of an unused home equity line -- to fund the purchase of a home for cash.
"When you pay cash, there's obviously no need for a mortgage and therefore no worries about whether the buyers will qualify," Richardson says.
However, many boomer-age parents are unable to help their children buy a home. In those cases, the offspring need to stake out a modestly priced property within their own price range.
Sid Davis, a veteran real estate broker and author of "A Survival Guide for Buying a Home," says the problem for many young purchasers is that they're drawn to employment meccas -- like Silicon Valley -- where they're priced out of the housing market. But some metro areas offer the combination of plentiful jobs and reasonable housing prices.
Economists at the National Association of Realtors recently did an analysis of U.S. markets where both job growth and housing costs are favorable for homebuyers under 35. Topping the list of 10 such markets are Austin, Texas, and Salt Lake City. Seven of the 10 metro areas cited are in the Midwest and West.
Davis says young adults seeking to buy in such a city should search for an up-and-coming neighborhood that's yet to experience an influx of purchasers.
"You want an area on the verge of a lot of employment growth -- for example, through the tech or energy sectors --but where the available houses are solidly built and still plentiful. Look for a place that's not yet hip," Davis says.
Here are a few pointers for young adults planning a first home purchase:
-- Get your credit credentials in order first.
Young adults spend long hours roaming the Internet, so it's not surprising that many try to figure out if they're qualified for home homeownership through online sources.
Granted, through the Internet you can scrutinize your credit reports and look for blemishes that need fixing. Under federal law, you're entitled every year to one free credit report from each of the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this website: www.annualcreditreport.com.
But Davis says there's no substitute for determining your mortgage eligibility by visiting a reputable lender.
"Mortgage pre-approval will tell you definitively how big a home loan you can obtain," he says.
Going through the pre-approval process will also give you your FICO scores. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person's credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp.
Sometimes young adults -- especially those buying a first home -- are surprised at how large a home loan they could obtain, given their income and credit standing. But when choosing a property, Davis cautions against spending above your comfort level.
"Remember that loan officers work on commission. That gives them an incentive to get you into the biggest possible mortgage for which you qualify. Greed is the reason lenders want a big return from making a big loan," he says.
He urges young adults who are single to be particularly careful not to overspend on a home because they're more financially vulnerable than couples who have two jobs on which to depend.
-- Seek a place that could give you rental income in the future.
A few decades ago, it was only poor people who would consider renting out a room in their home to help offset expenses. But Merrill Ottwein, a real estate broker and former president of the National Association of Exclusive Buyer Agents (naeba.org) says "co-housing" has become increasingly common.
What kind of home should you shop for if you plan to rent out a room? He says to look for a place with a bedroom suite that includes a private bathroom, so a housemate could live more autonomously. A separate, outside entrance to the suite is also an attractive feature for potential renters.
-- Avoid buying an energy-hog house.
After taking ownership, many young adults who are buying for the first time are surprised and alarmed by the size of their utility bills, according to Davis.
While many costs associated with homeownership, such as taxes and insurance, are unavoidable, Davis notes that home shoppers can more easily contain their utility costs by selecting an energy-efficient property that's well insulated and has double- or triple-pane windows.
Also, make sure you ask the home inspector you hire about the quality of insulation in a property you're considering and the energy ratings of its windows. Davis estimates that double-pane windows can save you as much as 15 to 20 percent on your utility bills compared with single pane windows.
"A good home inspector will level with you as to whether the house you plan to buy will kill you on utility costs," Davis says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)