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Most millennials want to buy a home, but can't afford one

PORTLAND TRIBUNE: JONATHAN HOUSE - Anna and Michael Williams are proof that millennials want their own homes, and can do so if they put their minds to it.Portland’s housing shortage is especially hard on younger would-be homebuyers. The shortage of homes for sale is continuing to drive prices up, making it even more difficult for those just starting out in life to afford them, according to a recent national survey.

Contrary to conventional wisdom, the vast majority of millennials in Portland and across the country want to eventually own their own home, according to a survey by Zumper, a startup that tracks issues facing renters. It found that 87.5 percent of millennials in Portland want to buy a home at some point in their lives, just slightly less than the 90 percent national average.

That might sound impossible, with the median home prices in the Portland region now at $340,000, a nearly 12 percent increase over last year. But rents also are going up fast. According to the ABODO rental tracking service, the price of a one-bedroom apartment in Portland jumped 13 percent to $1,370 between July and August, the fourth-biggest increase in the country.

Some young Portlanders have figured out how to swap their monthly rent payments for mortgages. For example, Kate Pienovi and her husband, Levi, were able to buy a home in foreclosure in Gresham that was listed at $221,500 after looking for nine months and competing against multiple offers on other properties. She is a 27-year-old hair stylist and he is a 29-year-old fish biologist.

“We wanted to buy a home because we wanted our money to be going into an investment of our own, rather than someone else’s pocket. We also wanted to start a family, but wanted to be in our own home first. We lived frugally and saved as much as we could during the time we were renting in order to have a down payment,” Kate Pienovi said.

But, according to the survey of 6,000 millennials nationwide, only 34.8 percent of those in Portland said they are earning enough money to afford the median mortgage for a single-family home. That is far less than most other cities that were surveyed, including Austin, Texas, where 71 percent said they could afford a median mortgage, and Atlanta, where the figure stands at 57.4 percent.

Another indication of the financial challenges facing millennials in Portland — 65.2 percent report living with a roommate, the second-highest figure in the survey behind Boston. The national average is 62 percent.

Not just millennials priced out

The situation is not unique to millennials, however. Many people in all age groups are having trouble buying homes because housing prices are increasing faster than wages.

Between June 2015 and June 2016, the median home price in the Portland region increased 13 percent, according to RealtyTrac, a national real estate tracking service. But wages only increased 7 percent, RealtyTrac said in a June 22 report.

Because of that, the average worker in the Portland region would have to spend 48 percent of their earnings to buy a median-priced home, RealtyTrac said — up from 42 percent at the beginning of the year.

Still, some millennials have figured out how to do it. Anna Williams and her husband, Michael, bought a 90-year-old home in the Brentwood-Darlington neighborhood in April. She is 22 and he is 31. Both are certified nursing assistants and part-time students.

Anna Williams said she searched for homes being sold by owners in the neighborhoods where they wanted to live. She and Michael connected personally with the sellers of the home they bought, who were another young couple. They kept the price below their $225,000 maximum. Michael qualified for a low-interest Veterans Administration loan because he served in the Navy.

“I think it’s really important to know that if a potential buyer looks in the right places, they won’t have to compete with investors offering 30 percent above the asking price. There are Portland homeowners out there who want their homes to go to good people that will love and respect the property,” Anna Williams said.

Median home prices are growing much faster than median family incomes in the Portland region. Motivation pays off

The Zumper survey was released Aug. 10, just two days before the most recent Regional Multiple Listing Service report. It found that between July 2015 and last month, the median sales price for a home in the Portland region increased 11.45 percent, from $304,900 to $340,000. Although new listings rose slightly from June 2016, the total inventory was still well below historic levels, continuing the sellers market that is producing bidding wars on many properties. Median prices near employment centers are much higher, including $470,000 in West Portland and $385,000 in Northeast Portland.

Realtor Bryan Atkinson said today’s high prices are not preventing motivated millennials from buying their first homes in the Portland region, however. Atkinson, who worked with the Pienovi and Williams couples, said about a quarter of his clients are young first-time buyers.

“They are wanting to buy for the same reasons as everyone else, for the security and to build wealth. But their incomes are limited, so they are not looking in the most expensive close-in neighborhoods, but in East Portland and Gresham, where homes are in the $200,000 to $250,000 range and may need some work. Almost all of them are married and both partners have jobs, and they also have at least a little money savvy and the ability to do some home improvements themselves,” said Atkinson, who works in John L. Scott’s Northeast Portland office.

That’s what Kate and Levi Pienovi did with their fixer-upper, which was built in 1981.

“We completely redid the kitchen, bathrooms and deck, now we’re working on the landscape, then the siding and exterior paint. We’ve done all the work ourselves — mostly my husband — all while working full time, so it’s been a lot of work, but it’s so rewarding to see the transformation,” Kate said.

Anna Williams also said owning a home is rewarding. She and Michael were living in an apartment in the Hollywood District when the urge to buy a home hit.

“As the end of our yearlong lease approached, I started to fear everything I was hearing on the radio about peoples’ rent going up by hundred-dollar increments, and I just didn’t see the point in staying in an apartment if our money wasn’t going anywhere in the future,” Anna Williams said. “I hope other Portlanders out there can find their special place, renting or owning, and be able to enjoy this city without so much worry for the future. I know for sure it’s hard to feel invested in your city when you feel like you’re being priced out of it.”

Many millennials in the Portland region do not want to buy a home now, however, even though rents are predicted to continue increasing as the economy recovers.

“Job growth is really a key factor in rent increases in rapidly growing cities like Portland. After that, the lack of available units and demographics play large roles in the rent increase puzzle. Young people really, really love Portland. And this group is less likely to purchase a home, because it’s much more convenient for their lifestyle to rent. It’s a simple supply and demand concept. More renters and less available units will cause an increase in rent price,” says Sam Radbil, ABODO’s communication director.

Home prices outpacing incomes

When it comes to buying a home, Portland is one of the least affordable cities in the country because home prices are rising much faster than incomes — creating what economists call a growing affordability gap.

It’s not unusual for median home prices to increase faster than median family incomes. That’s why homes are considered a good investment. But the difference has grown substantially over the past five years.

The Regional Multiple Listing Service first started tracking median home prices in the Portland region in 1992, when it was $97,000. The price rose to $204,500 in 2004, just before the start of the housing bubble fueled by risky lending practices. That was a increase of 110 percent.

During that same time, median family incomes rose from $39,366 in 1992 to $60,319 in 2004, according to figures complied by Josh Lehner, an economist with the Oregon Office of Economic Analysis. That’s an increase of 53 percent.

According to those figures, the difference between the two increases was 107 percent.

Both median home prices and median family incomes dropped when the housing bubble burst and the Great Recession began in 2005. But since the recession officially ended in 2009, the difference between the increases has widened significantly.

According to the RMLS, median home prices rose from $247,000 in 2009 to $340,000 in July 2016, an increase of 38 percent. But according to Lehner’s figures, incomes only rose from $67,290 to $77,409 during that time, an increase of just 15 percent.

That’s a difference of 153 percent, which helps explain why homes now seem so unaffordable to so many people in the Portland region.

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