Denver Tops List of Cities With Younger Homeowners

Prospective or current homeowners under age 35 are probably looking for a lively city to call their own, but still need to make finances a high priority. In terms of raw numbers, it seems that Denver is one of the top destinations for the latest generation of homeowners.

According to Nerdwallet, which compiled data from the U.S. Census Bureau's 2015 American Community Survey, the Mile-High City boasts the 10th largest number of homeowners under age 35  in the nation. With 22,808 millennial owners counted in the survey, Denver came in just below Indianapolis but slightly ahead of Austin, Texas.

The data changes, however, when ranked as a percentage of the city's total population instead of nominal headcount. While only around 16 percent of Denver homeowners are under 35, Jacksonville, North Carolina, boasts the highest rate of young homeownership - more than 28 percent of owners there are younger than 35. Other top cities ranked by young owner rate included Clarksville, Tennessee, Ames, Iowa, Enterprise, Nevada and Reading, Pennsylvania.

In total, homeowners in this age group comprise the largest category of real estate buyers  in the U.S. as of 2013, according to the National Association of Realtors. At 34 percent of all American buyers, that means millennials compose one-third of all homeowners in the nation.

What exactly separates cities with more young homeowners from those with relatively few? One critical aspect may be the types of houses available in the local market. Buyers under 35 are more likely to have lower incomes, fewer financial assets and generally less ability to afford even a median-priced home. That may leave them stuck between deciding on purchasing a starter home, or opting for a long-term investment in a "forever home" instead.

Beyond getting a sense of what's available, financial writer Emily Starbuck Crone explained that this decision involves a lot more planning  than might be immediately obvious. 

Younger buyers gravitate toward starter homes, but they shouldn't ignore bigger investments.

When to buy a starter home

Since starter homes are generally smaller and less expensive, they are a more ideal category for buyers who want to live in an urban area. That may necessitate actually purchasing a condo as a first home, rather than a separate structure.

While younger buyers are often attracted to the perks of city life, they can't forget future considerations. Younger homeowners are more likely to face significant shifts in their careers or personal lives that will change what they need in a home.

Don't forget that, while it's possible to sell a starter home after living in it for a short time, it might not be the most financially prudent situation. That's not only due to the possibility that you won't be able to sell at a profit, but also that the tax bill might be expensive. Crone noted that the IRS excludes home sales from capital gains taxes on the first $250,000 earned from the sale (or $500,000 if married), but only if the property was used as a primary residence for at least two of the first five years of ownership. So if you owned the home for less than two years, or lived elsewhere for most of that period, you may owe a significant amount in taxes upon selling.

Considering a longer term purchase

Is it wise to skip the starter home and invest directly in a house that will last as long as possible? Maybe, but only if your finances allow for it. 

On the plus side, home loans are almost cheaper than ever in terms of interest rates. The going rate on a 30-year fixed-rate mortgage was 4.25 percent as of early July 2017 . By locking that in now, homeowners could save a lot over the life of the loan while rates start to rise again. 

At the same time, those savings are only attainable for buyers who can truly commit as long as possible. If they are forced to refinance or sell due to changing life circumstances, those gains could be eliminated. In addition, while home values are generally on the rise, there is no guarantee that any one home can be sold for a profit at any point in time.

At the end of the day, the choice between a starter home and a forever home is a difficult one for young buyers. Be sure to weigh all the considerations carefully before forging ahead.

If you need more information about mortgages; please contact your local Vectra Bank.