Will millennials benefit from historically low mortgage rates?

Mortgage rates are at near-record lows as many millennials are hitting their 30s — the age when many people traditionally become homeowners. Yet the low rates are unlikely to significantly increase millennial homeownership

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rates, which are about 8 percent lower than past generations, according to analysts.

Here’s what’s stacked up against millennials, and why homeownership matters in building wealth, at a time when this generation is already lagging behind its predecessors. While there is no official definition, millennials are generally considered people born between 1981 and 1996.

Current housing market conditions
The interest rates for a 30-year fixed rate mortgage dropped sharply last week to 3.6 percent, on fears of an economic downturn. The current rates are more than a percentage point lower than they were last November.

Let’s say you considered buying a $300,000 home on a 30-year mortgage in the fall, but held off. If you were to buy the same house now, the interest rate drop could decrease your monthly payments by $160 per month and save more than $60,000 over the life of the loan.

“Conditions are very favorable [to buy a home],” said Greg McBride, an economist with Bankrate.com. In addition to low interest rates, “the labor market is the best it’s been.”

But there aren’t many affordable homes on the market. Older Americans are not “moving up” to larger houses like they did in past generations. Investors have bought up many of the smaller homes that would have been affordable for first-time homebuyers. And developers are building more apartments to rent instead of condos to sell.

Even if there were lots of homes to choose from, many millennials would have a difficult time saving enough money to purchase one. What’s holding them back? Student debt and the high cost of housing.

Student debt weighs on millennials’ ability to save and make mortgage payments. With college costs soaring, the average student loan balance for a millennial borrower is $34,500, according the consumer credit reporting agency Experian. It also factors into whether a lender will approve a borrower’s loan.

But even if millions of millennials weren’t contending with the expense of college loans, incomes have not kept up with rising housing costs.

If someone with a median income saved 10 percent of their earnings, it would now take them 5.7 years to save enough money for a 20-percent down payment on a median-valued home — that’s 1.5 years longer than it took in 1988..

The good news: A 20-percent down payment is no longer needed to purchase a home. Lenders and government programs offer a variety of other options for lower down payments. Some of them come with an additional mortgage insurance that will be added to monthly payments, but that extra fee can be eliminated once 20 percent of the home’s value is paid down.