There’s a reason millennials have long struggled to purchase homes — and this is before the housing market blew up during the pandemic, resulting in sky-high home prices. For one thing, many millennials graduated college with heaping piles of debt. And it’s hard to swing the cost of a mortgage when you’re covering other debt payments.
Also, it’s true that mortgage lenders are charging higher interest rates on loans these days. But even when mortgage rates were lower, there was still the big question of affordability that millennials had to contend with.
During the third quarter of 1970, the average U.S. home sold for $26,000. During the third quarter of 2019, the average home sold for $382,700. Since millennials — particularly younger ones — often earn respectable but moderate wages, it’s easy to see why so many have struggled to buy a home to date.
Despite those struggles, the U.S. Census Bureau reports that the homeownership rate among millennials is 51.5%. However, millennial homeownership rates are higher in some parts of the country than others.
Here’s where the share of millennial homeownership is highest
In September, Scholaroo ranked the states with the highest and lowest millennial homeownership rates based on U.S. Census Bureau data. It found that these states boast the highest millennial homeownership rates:
- West Virginia
Affordable housing plays a big role
A big reason some states have more millennial homeowners than others boils down to housing prices and general affordability. The rate of millennial homeownership in Iowa is an impressive 63%. And Zillow says that the average home value in Iowa is $210,484.
More: Check out our picks for the best mortgage lenders
But the average home value across the U.S. is $346,653, per Zillow. So it’s easy to see why younger buyers are able to make homeownership work in a place like Iowa, as opposed to, say, California, where the average home value is $746,473, reports Zillow.
How much house can you afford?
As a general rule, you should aim to keep your housing costs to 30% of your take-home pay or less. And that 30% should include your mortgage payments as well as your recurring costs like property taxes, homeowners insurance, and HOA fees, if they apply to you.
You may need to limit yourself to buying in certain states to stick to that limit, as going beyond that could cause you to fall behind on not just your homeownership costs, but other expenses. So it’s best to stick to that threshold — whether you’re a millennial buyer or not.
That said, also take your non-housing expenses into account when determining how much house to take on. If you have children or expect to have children soon, you might spend thousands of dollars a year on child care, whereas someone with grown kids or no kids might spend $0. So you may decide to keep your housing costs to 20% of your income instead of 30% for that reason.
The 30% rule is a good general guideline. But use it as a starting point in the context of your specific expenses and goals.