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A home for sale is seen in Santa Monica, California, on March 21, 2017. Photo by Lucy Nicholson/Reuters

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 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, according to the real estate company Zillow.

And the scramble is worse in higher cost areas. In the Bay Area, it can take up to 13 more years to save for a down payment than it did 30 years ago.

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.

How the Great Recession still looms

In the wake of the financial crisis, banks tightened their loan requirements after they were criticized for lending too easily and contributing to the creation — and subsequent burst — of the housing bubble.

That means millennials, who tend to have lower credit scores than other generations, need a higher credit score to buy a house now than they would have a decade ago. Millennials who graduated college during the Great Recession are also expected to have lower lifetime earnings than those who graduated during times of economic growth.

If millennials decide to buy a home, they have to believe two things: that they will be financially stable enough years from now to make the mortgage payments, and that a home will be a good long-term investment.

Economists do not anticipate a repeat of the 2008 housing crisis. But millennials may still be hesitant to become first-time homebuyers over fears of an impending recession and a housing market downturn.

Among those millennials who are able to afford a house, a survey from Zillow found that most were happy with the move, despite many having regrets about the mortgage process.

Jeff Tucker, an economist with Zillow, suggests millennials need to take their time when moving through the process.

“The single best thing you can do is shop around for a rate and the terms of the mortgage,” Tucker said. “See what options are out there and make lenders compete for your business.”

The long-term consequences of not buying a house

The longer a person puts off buying a home, the more they will pay for one and the more likely they are to have mortgage debt later in life.

Research from the Urban Institute, a Washington, D.C.-based think tank, shows people who bought their houses between the ages of 25 and 34 (the age millennials are now), had $135,000 more value built up in their homes when they turned 60 than people who bought their first homes after they were 45 years old.

The bottom line: “The delay [in buying a house] is not just going to affect [millennials’] current life satisfaction. It could have a longer term effect on their wealth as they age,” said Jung Hyun Choi, a research associate with the Urban Institute.