(Editor’s Note: This is part of a monthly series focused on housing challenges in Massachusetts.)
Sarah Smith, 31, and her boyfriend have reached an age when they’d like to buy their first home.
But it’s not so simple.
“It’s just not doable,” Smith said. “We grew up around here, we love our jobs and we want to be around our families, so it’s tough for us. We know we’re going to have to make compromises.”
The couple rents an apartment in Cambridge, works full time at tech startups in Boston and estimates they could afford a two-bedroom house costing less than $500,000, according to Smith. But that’s roughly $1 million short of the cost of a single-family house in Cambridge, where the median sales price totaled $1.6 million in 2018, according to Zillow.
And while Cambridge is more expensive than most other communities, the cost of buying a home is growing quickly in Massachusetts, especially in the Boston area, fueled in part by a housing crisis that’s limiting opportunities and creating fierce competition. At the same time, interest rates are falling again, which will likely heat up the real estate market everywhere.
“It’s crazy out there,” said Marie A. Presti, owner of The Presti Group, a realty company based in Newton.
In March, Presti accompanied a first-time homebuyer to a showing in Medford. The single-family house came onto the market on a Saturday with an asking price below $500,000. By Tuesday, her client made an offer, along with 25 other prospective buyers.
“There are too many buyers at this price point,” Presti said.
The stiff competition and high prices are keeping millennials – representing adults born between 1981 and 1997 – out of homeownership, a hallmark of the so-called American Dream.
A smaller amount of young adults living in the United States – 37 percent – own homes compared to prior generations, according to The Urban Institute, and the number gets worse in the Boston metro area where 27.6 percent of millennials owned homes in 2017, according to a report by Adobo.
For many, including Smith, it means staying in the rental market longer, either until they can make enough money, or decide to move somewhere cheaper.
“We’re not there yet, so we feel like until we’re at that place, we can’t have the house we want,” she said.
The housing opportunities for first-time homebuyers are further challenged by a persistent lack of affordable housing, which is having a multigenerational effect.
A Wicked Local report in March showed affordable housing options for older adults are scant at the same time more people are choosing to “age in place,” or live at home longer, bucking a trend of previous generations.
The age-in-place option is good news for older adults, who are wary of assisted living and nursing homes, but bad news for young adults who are looking to buy homes because it means fewer houses are available. The related shortage amplifies already-growing home prices.
“The additional demand for home ownership from seniors will increase the relative price of owning versus renting, making renting more attractive to younger generations. However, a shortfall of new construction puts upward pressure on both house prices and rental rates,” according to a February report by Freddie Mac.
The public mortgage company estimates older adult homeowners account for about 1.6 million of the houses held back from the market through 2018. That number represents more than half of the current shortfall of 2.5 million housing units across the country, according to the report.
Limited single-family houses push first-time homebuyers, including Julia Murray, to the condo market. Murray, a Lexington native, said her first choice was to buy a single-family home in Malden. But she couldn’t compete with other offers, and after searching for a while longer, she decided to buy a condo in Chelsea.
“The Malden house sold in five days of being on the market,” she said.
Murray, who was 28 years old when she started looking last year, said the decision to buy was encouraged by her father – a real estate agent – coupled by the fact that her rent was climbing.
“Rent kept going up and up,” she said.
The trend of rising rent in Massachusetts adds another layer of financial uncertainty for young adults, including those on the fence about homeownership. In February, Zillow estimated the median rental price for a two-bedroom apartment in Massachusetts totaled $2,450, representing a 10.8 percent increase compared to the same month five years ago.
Most financial advisers recommend against spending more than 30 percent of income on housing costs, including rent, meaning a household would need to make nearly $100,000 per year to pay for an apartment costing $2,450 per month. That amount excludes utilities such as heat and electricity.
The estimates exceed the Bay State median household income of $74,167, meaning renters are likely overextending themselves, making it difficult to save any money, let alone enough for a future down payment. Rising rent costs are also leading to higher rates of eviction, which fuels a growing number of people experiencing homelessness in Massachusetts.
Republican Gov. Charlie Baker proposed legislation this year to overhaul local zoning ordinances to make it easier to develop more housing. Presti said the proposed law could help level off housing prices, but she believes more needs to be done.
“Municipalities need to come up with their own strategies of how to come up with more inventory,” she said. “We have to find pockets of opportunity because there’s only so much land, and we need to build more affordable housing.”
Despite the challenges, first-time homebuyers are nonetheless adamant about cracking into the homeownership market, and some are finding creative ways to make it work. Murray, for example, is considering renting out her condo in the future and looking for a cheaper apartment for herself closer to her job in Waltham.
Anna Schmid, 30, of Watertown, is starting to look for her first home to purchase. Her plan is still developing, but one idea includes living with others.
“The idea would be to get a two-bedroom and then to try and find a roommate who would help out with the mortgage,” she said.
Another solution to cutting down on housing costs would be to move elsewhere, either to a cheaper community in Massachusetts, or to another state where real estate is less expensive. But for many -- including Smith -- who already live and work in a place they call home, such a move would require getting new jobs, or battling the congestion of the Boston area, recently ranked home to the worst rush-hour traffic in the country.
“If you move 40 miles outside of Boston, it could take you an hour and 20 minutes to commute each way,” said Smith. “Spending that much time in a car is not a real recipe for happiness in life.”