Millennials Buying Home

Millennials Face Difficulties Affording Homes

For many Americans, a key part of the American Dream is the ability to save enough money to afford a home. But for millennials, many of whom are currently at a point in their lives where they’d like to move out of their parents’ house or their apartment and own a piece of real estate, a number of factors can make this dream seem to be an impossibility. According to the Urban Institute, just 37% of millennials owned homes in 2015, down eight percentage points from Gen Xers and Baby Boomers when they were a similar age. If millennials owned homes at the same rate as previous generations, there would be around 3.4 million more homeowners today. And although 9 out of 10 millennial renters would like to purchase a home, only 4.9 percent say they plan to do so in the next year, and 34 percent anticipate waiting five years or more before being able to buy real estate. Among millennials who want to own a home but are unable to do so, 3 out of 4 cite affordability as the reason, with many citing a lack of savings for a down payment and the burden of student loans as contributing factors.

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The causes for millennials’ problems affording homes are multifaceted. Whereas many Baby Boomers were able to attend public colleges and universities without having to pay for tuition, most Millennials did not have the same luxury, instead having to borrow tremendous amounts of money to pay for educational costs which, despite offering a value which has remained stagnant over the past several decades, have grown substantially faster than the rate of inflation. Because a higher percentage of millennials attended university than previous generations, the value of a college degree has diminished, as employers have a wide variety of choices for hiring well-educated candidates. And while millennials’ paychecks have roughly the same purchasing power as those of Americans living 40 years ago, the average cost of housing has more than doubled in that time. It has been estimated that, at the current rate, it will take the majority of millennials twenty years to save enough money for a down payment.

The financial burdens imposed on millennials dreaming of owning a home extend beyond stagnant wages and student loan debt. The cost of renting an apartment is substantially greater than it used to be, and because of the generation’s difficulty earning money, financial institutions are more reluctant to grant credit to millennials, with 58 percent of millennials being denied credit, compared to 35 percent of prior generations. Millennials are also less likely to own stocks than other generations were, as a result of having come of age during the Great Recession and becoming skeptical of the stock market as a result, causing many millennials to miss out on some of the major benefits of the recent economic boom. As a result of these economic problems, some forecasters predict that real estate agents will have difficulty selling houses in the future, as millennials replace Baby Boomers as the country’s largest generation.

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Other factors discouraging millennials from homeownership are also at play. Millennials are the most racially diverse of any current American generation, and homeownership is more valued culturally among caucasians. Additionally, millennials are waiting longer than their parents and grandparents to get married and have children, as the marriage rate among young people has dropped from 52 percent in 1990 to 39 percent in 2015, delaying the urgency of owning a home. Also, millennials tend to prefer to live in cities more so than prior generations, where the cost of living is higher and purchasing a house is out of the question. As a result of economic changes over the past several decades, the demographic among millennials most likely to own a home are those who can earn more due to having a college education and come from a wealthy background, as they can borrow money from their parents to supplement the cost of a down payment. As houses are frequently the most valuable financial assets Americans own, not owning a house has a negative impact in a person’s overall ability to accumulate wealth over time. Additionally, intergenerational transfer of homes is likely to increase wealth disparity between races of millennials, as minorities are less likely to own and be able to inherit homes.

Though these prospects seem grim, a number of solutions have been proposed to help with the problem of home affordability among the younger generation. One proposed solution is to invest in programs teaching young people about the finances of homeownership, encouraging people to start saving up for a home from a younger age and increasing awareness of programs designed to help people afford homes. Another proposal is to update the criteria that creditors use to evaluate millennials’ suitability for loans, taking into account their rental, telecom, and utility payments. In any case, whether you’re interested in buying a home soon or not, it’s always a good idea to make sure you’re keeping good track of your finances and have a smart, realistic plan for your future.