Millennials & Housing
Homeownership Challenges for Millennials
For decades, owning a home has been a part of the American Dream, one of the most significant investments many make in their lifetime. When home prices and interest rates fall, demand rises as more people enter the housing market to buy a new home. However, in today’s low-interest rate environment, one demographic- the Millennials- isn’t necessarily setting its sights on the milestone of homeownership right away. An increasing number of Millennials are delaying the purchase of their first home.
But why is that? Let’s delve into what prevents this generation from purchasing homes at the same rate as previous generations.
1. Home prices have risen faster than wages.
Prices have skyrocketed, and wages are not keeping up with the pace. According to one study, median home prices increased by 30% over the last decade, while median income increased by only 11%.
Homebuyers used to pay four to five times the average income for a median home. Then, just before the 2008 market crash, that ratio rose to between six and seven. After the housing bubble burst, it dropped and remained below six for several years. In today’s market, average home prices can now exceed seven times the median income.
To put this in context, the national median home price in 1990 was around $121,500, or slightly more than double the national median income of $50,200. In 2020, home prices were expected to rise to around $358,700. while the median income hovers around $67,521
2. The 2007 Great Recession and Housing Bubble
A housing bubble occurs when high demand drives up home prices. Due to the dot-com bubble and the Fed’s rate cuts in the early 2000s, investors turned to non-stock investments, creating a massive demand for homes. Furthermore, because there were fewer regulations, you didn’t need great credit or income to get a mortgage — but those payments came due in addition to higher interest rates.
When those subprime borrowers could not pay, the lenders went bankrupt, the global banking system collapsed, and the Great Recession began.
As a result, home building has slowed significantly. Even after the country recovered and the economy began to grow again, homebuilding never returned to normal levels. However, mortgage rates fell again, and the population of homebuyers continued to rise. When demand exceeds supply, prices rise, and this higher has made it hard for millennials to buy homes.
3. There is increased competition
As fewer families can afford to buy homes, investors and investment firms have stepped in to purchase properties and then rent them out at a profit. It is not a new phenomenon, but it is becoming more prevalent. And investors have increasingly sought single-family homes, the typical type of home sought by first-time buyers. This has also increased the competition among millennial buyers and decreased the number of home purchases.
4. Baby Boomers Aren’t Selling Their Houses
In 2019, millennials surpassed baby boomers as the largest living adult generation, just as their desire to own a home increased. Before the pandemic, millennial homeownership was on the rise. However, as baby boomers have aged, many have remained in their homes or sought to downsize. That means fewer homes for sale and an increasing number of buyers looking for small, single-family homes. And because many of those boomer buyers already own homes, their equity will likely help them make competitive offers.
5. Millennials are burdened by student loan debt
Numerous studies have found that millennials are delaying homeownership due to student loan debt. When millennials were the same age as baby boomers and Gen X, their homeownership rate was lower. Though millennial homeownership has increased during the pandemic, some economists and experts attribute this lower home purchases by millennials to the student loan pause.
Conclusion
Owning a home can be a life-changing experience. But the fact is that there are several Homeownership Challenges for Millennials. According to some experts, a broader student loan forgiveness program would most likely encourage millennial home buyers. For the market to ease, the supply of homes must catch up. You can seek expert advice on how to set up your finances to overcome these challenges and get into your own home as soon as possible. Give me a call today for expert assistance.
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