Savings struggle: How long it takes to save for down payment on house
Prospective home owners looking for a window to get into the housing market better continue saving in order to afford that down payment.
According to a new report from online real estate company Zillow, it takes the average American – earning the median income and putting 10 percent away monthly – seven years to save enough for a 20 percent down payment. That represents the longest period of time since 2008, during the housing bubble.
Two decades ago, it took an average of 5.5 years to save for a 20 percent down payment. However, over that same time frame, housing prices have appreciated at nearly twice the rate of incomes, according to Zillow. While the average home value rose more than 98 percent between 1998 and 2018, incomes have only risen about 52 percent.
Consequently, the company said saving up for a down payment is one of “the biggest barriers to owning a home.”
While individuals often turn to outside sources, like friends and family, to supplement savings short falls, in different areas of the country it can take much longer than seven years to amass the necessary cash for a down payment based on savings alone.
In San Jose, California, for example, it would take the average American nearly 22 years to save enough for a 20 percent down payment: Home prices in the area have skyrocketed by a whopping 296 percent since 1998. In Los Angeles and San Francisco it would take prospective homebuyers more than 18 years.
In Pittsburgh, on the other hand, residents could save up enough for that 20 percent down payment in just about 4.8 years.
The Commerce Department on Wednesday reported that new home sales were 553,000 in September, the lowest rate since December 2016. The median sale price was $320,000.
The housing market has been struggling with a lack of inventory, thanks to slower rates of construction. A lack of construction workers and increased regulatory burdens have prevented contractors from building up inventory – which has in turn caused prices to jump and made it particularly challenging for first-time buyers to enter the market.