Ah yes, the “American Dream” of homeownership. It’s been said over and over again how buying a home is the pinnacle of “making it” in America. But is it really? Another question to ask is, are millennials buying homes?
Studies conducted by the US Census Bureau, 1 in 3 millennials under the age of 35 own a home. Much as that might sound like a good number, statistically, its 9% lower than previous generations around the same age. This just shows how so fewer people in this age group are buying homes.
To top it all off, 63% of those Millennials that do own a home regret their purchase. This was according to a survey conducted by Bankrate. Let’s dig a little deeper as to why millennials aren’t buying homes as they should.
1. Low starter home inventory
Based on an analysis conducted by Zillow, the inventory of the bottom third of the market has fallen sharply at 23.2%! what this means is fewer starter homes for Millennials to get into the housing market. This has the added effect of placing more pressure on the rental market. This pushed up rental prices and making living more and more expensive for Millennials.
An additional effect of low inventory means that prices are being pushed up as well. It’s making homes even less affordable for Millennials to buy. Once a home is on the market, there is fierce competition between buyers. It ends up becoming a bidding war and pushing the price higher and higher. All not good things for the average millennial trying to buy a home.
Housing has become more and more expensive accoss the entire country.Tweet
2. Homes are getting very expensive
Expanding a bit on the point I mentioned above, home prices across the country are constantly rising. This is especially true for larger coastal cities and states like New York and California. Homes are typically cheaper in the midwest and in more remote areas. As more and more Millennials seek high paying jobs, they opt to move to the very high cost of living areas. The more Millennials move there, the higher housing will cost since there is a very stark shortage in homes.
3. High student loan debt
The total outstanding student loan debt is hovering at $1.6 trillion. Yes, trillion with a T! That’s a lot of debt that Millennials are facing and somehow have to pay it down. Although there are ways to have their balance forgiven, it will take an average of 25 years for that to happen. By that time, they will already be nearing retirement by then!
Having such a financial burden as soon as you enter the job market definitely delays owning a home. It’s an understatement saying that it makes it a lot harder to do. It also doesn’t help that wage growth has been stagnant and thus also making it even harder.
4. Tighter lending
Since the last financial crisis, lenders are extremely diligent and strict when it comes to applying and qualifying for a mortgage. While it was much easier for older generations to qualify for a mortgage, lenders now are very calculated and would rather see you walk than offer a mortgage.
The 20% down payment is a tall order to ask when buying your first home. Now with tighter lending practices, even lower down payments come with higher interest rates, further pushing the monthly payments higher
5. Getting married later
Statistically, less than 60% of people aged 25-35 live with a spouse, compared to 80% back in 1967. This then means they have less of a need to settle down in a home. With a single income, it also means having less buying power. In comparison, married couples join their income to qualify for a home and be able to save for a down payment much faster.
Getting married or having children was always typically the trigger that would entice people into owning a home and settling down. According to the Center for Disease Control (CDC), the average age of a first-time mom is about 26.6 as of 2016. This means that there are a large number of single mothers as well, making home affordability even more difficult.
All the factors mentioned above contribute to the lower number of millennials that are buying homes. Of the lucky few Millennials that are able to buy a home, a study conducted by Bankrate shows that 63 percent say they regret purchasing their home!
A stark change in how it used to be in the housing market, compared to now, as a millennial myself it’s unfortunate. However, we also need to take into consideration the cultural and economic changes and how they affect each generation as they pass by.