Buying a home for the first time can be a daunting task for young people — many of whom are already faced with a significant amount of student loan debt, are trying to dodge ever-increasing rents, or who are starting families.
Nevertheless, millennials including a growing number in the D.C. region, are increasingly motivated toward homeownership. Particularly among those born between 1977 and 1995, an interest in purchasing condominiums and row houses in the Northwest area where the more upscale, revitalized neighborhoods of U Street Corridor and Shaw neighborhoods are located, has blossomed. In such communities, recent housing sales have garnered as much as $112,000 for a 500-square-foot, one-bedroom condo and $1.1 million or more for a renovated, three-story townhouse.
LaShawn Channing of Alpharetta, Ga. — a ritzy suburb just outside of Atlanta — has long set her sights on purchasing a rowhouse in D.C., where she sometimes works for weeks at a time.
The 32-year-old software sales representative said she wasn’t that surprised to discover the cost of older homes in the District compared to some of the new construction dwellings she’s seen spring up on the outskirts of D.C.
“The prices for the kind of house I’d like to buy in D.C. — with at least three bedrooms, three baths and a front porch — are excessive, to say the least, something like way over $500,000,” Channing said.
She said although she pays a little over $1,400 a month rent for her spacious two-bedroom, two-bath Alpharetta apartment, she’s bent on settling in the District.
“Each time I come here, I’m reminded how expensive it can be,” Channing said. “But I love D.C. and realize there’s some more spending to cut back on if I’m going to keep saving my money to buy a home in the nation’s capital.”
While monthly rents in D.C. can be extremely high — luxury two-bedroom suites in state-of the-art buildings can easily cost $2,100 or more — local real estate agents like Lindsay Dreyer remain optimistic that millennials with good-paying jobs and who love the city’s ambience, will buy homes in or near the area.
Dreyer, 35, owner of the seven-year-old northwest D.C.-based City Chic Real Estate firm, said however, that many of her peers are surprised to learn their monthly mortgage payments can possibly be less than their current rent.
But that’s depending on where they choose in the region to live, she said.
“First, in D.C. we’re limited in inventory and there really aren’t enough homes available for sale,” Dreyer said.
“So [along those lines], although the competition can, at times be fierce, there isn’t a lot of move-in ready homes at affordable prices,” Dreyer said. “Right now, interest rates are on the rise and prices are also still going up, so the monthly payments prospective buyers could afford two months ago are not necessarily the mortgages they can afford today. This makes affordability a big issue for millennials.”
Dreyer explained that while prospective buyers tend to have high expectations for what they can get for their money, coming to grips with D.C. as one of the most expensive housing markets in the country, can be an eye-opener.
Many have come to the realization that a $350,000 budget, for example, is not going to buy them a lot of house.
“So, I think there is definitely frustration in what they will be able to get for their money,” Dreyer said.
“They may also think they can get a brand new two-bedroom condo close to a Metro station for $350,000, when that’s not the case. And, that can cause a lot of disappointment.”
According to the D.C.-based Center for Economic and Policy Research, local policymakers have been fighting for decades to attract young people to housing in the city’s downtown.
While that objective, to a large extent has been accomplished — with more millennials than expected having already moved to neighborhoods in close proximity to Metro stations and their jobs — the long-term growth of the District’s population and tax base also depends on millennials staying put well into their thirties and forties.
The policy center likewise states that while a young couple with a combined income of about $89,000 would have “plenty of great urban-living, one-bedroom options,” when it comes to the need for extra bedrooms to accommodate a growing family, the scenario changes to one that calls for a bigger home and a bigger income.
To that end, Dreyer can’t stress enough, the importance of millennials being educated to the house-buying process.
To offset obstacles in the homebuying process, Dreyer suggests they do their homework.
“Get educated on what financing options are available, and that can be done speaking with real estate agents or mortgage lenders,” she said, emphasizing that in addition to becoming familiar with what’s available in which neighborhoods and communities, millennials should take advantage of workshops and seminars agents and realtors provide for free. By doing so, millennials can begin putting a house-buying plan into action.
Making sure one’s credit is up to par is also part of the education process.
“That’s very important,” Dreyer said. “And, in dealing with lenders — millennials like everyone else — will go through pre-approval procedures which involve a credit counseling process where credit reports will be pulled and income and asset information obtained.”