Millennial homeownership has never been strong, and within the last year, it has hit a record low.
The age range of millennials is typically considered to be between the ages of 25 and 34, and for generations in the past, that have been prime years of purchasing a first family home.
When it comes to the millennial generation, however, those numbers have proven to not be consistent with the generations of the past There are several reasons why that is true, and we will go over the primary factors that have led to a generation that may opt to rent for much longer and put off buying property until later in life.
Millennial housing is less affordable
One of the primary factors that has led to delayed millennial housing and home ownership is that houses are simply more expensive to buy than they used to be. This is one of the major millennial trends that economists have noticed. The National Association of Realtors computes affordability index by comparing median home price to median family income. That way, it gauges whether a typical family can qualify for a mortgage loan in a set region.
While millennials housing is affordable by this aggregate measure, it’s lower than the rest of the population whose work experience means their income is substantially higher.
The biggest obstacle that the NAR has identified for prospective millennial homeowners is to have enough expendable income to put down a down payment. The NAR assumes a down payment is worth 20 percent of the total cost. When you consider the cost of houses in some of the most attractive millennial markets, which are typically cities or just outside major urban centers, it is not too surprising that they can’t afford that down payment. Its no wonder millennials are hesitant to purchase with rising average American household debt levels, many borrowers are cautious not to overcommit when buying a property.
The record amount of student debt puts young adults in a financial hole
By the end of the first quarter in 2018, the amount of students in debt to school loan lenders topped $1.5 trillion. That number of students in debt is jaw-dropping by any metric and is perhaps one of the most understandable reasons why millennials have not been able to enter the housing market like so many generations before them.
Students in debt to loans have found that their student loans often come with high interest rates and can grow even when they are being paid off. It is a true problem that the millennial generation will likely face for years, or possibly even decades to come.
It is not only about affordability.
The millennial home ownership rate has fallen at a faster rate than other age groups. While criticisms from financial minds have arisen in recent years (think back to Tim Gurner who foolishly stated that millennials are spending too much on avocado toast), there are much more legitimate reasons why millennials have yet to enter the housing market.
Another reason why millennial housing and home ownership is not on par with previous generations is because there has been a huge uptick in rental costs. As of 2015, the percentage has increased from just 9 percent to 12 percent.
Beyond that, millennial trends show that they are much less likely to live with a spouse or partner well into their young adulthood than many other generations before them. Data from the Census Bureau shows that just 55 percent of 25 to 34 year olds live with a spouse or partner compared to 80 percent in 1976. This huge decrease makes millennials spending power much less than previous generations and also means that they are much less likely to need a home, because the likelihood of them starting a family is also much lower.
Life events such as getting married and starting a family traditionally triggers a first home purchase. Because a huge percentage of millennials are delaying those big life events, they are also not feeling the inclination to buy property.
Finally, as mentioned before, millennial trends are very different from previous generations in the fact that they are flocking to urban centers as opposed to spreading out to the cheaper and more accessible suburbs. Because they are moving to and staying in urban centers such as New York City, Los Angeles, and San Francisco, renting is sometimes preferred. Because of the higher-living costs of living in the aforementioned city centers, buying property is made even harder. That goes without even considering the incredibly high housing costs within those kinds of locations.
Overall, it seems as though the road to home ownership for millennials is going to be tougher than it has been for previous generations. In no way does that mean it will not come to pass. It may just be delayed.
It is unclear how this will impact the housing market once baby boomers begin to decrease and millennials begin to take over more and more of the American economy. What is clear already is that while there used to be clear societal and economic rules as to when a person or family was ready to buy their own home, it seems many of those rules have seemingly been thrown out the window when it comes to the millennial generation.
Whether or not that will have lasting economic implications on Americans across the country remains to be seen.
If this has not dissuaded you are you’re ready to begin your search for a home, see our guide on the best house-hunting websites to begin your home-buying journey.