At a Glance
Millennials are now in their prime home-buying years, and yet they are way behind purchasing houses when compared to previous generations. Why is this? Can it be changed or is too late for Millennials?
Once a renter, forever a renter? Young Americans are starting to feel that way, according to a new survey by the Federal Reserve Bank of New York that revealed that the confidence renters have that they’ll become homeowners one day has dropped to record lows. Millennials, amongst many other nicknames, have even been dubbed “Generation Rent.” Well, at least that’s better than “Generation obsessed with avocado toast.”
Millennials and Gen Zers do have more reasons to be pessimistic about dreams of home ownership. Between home prices soaring and the student debt crisis, affordability is the main factor holding younger generations back from jumping into the housing market. Not to mention the fact they are still competing with older generations with more resources – and Wall Street buyers.
But younger Americans still want in: 65% of millennials and 59% of Gen Zers identified homeownership as a top sign of success in a Bankrate Financial Security survey. Gen Z is not making enough money yet – a lack of sufficient income was the main reason cited by that age group for not owning a home – while millennials reported that high home prices were a barrier.
It’s safe to say that the landscape for purchasing property is not the same as it used to be. Older millennials now have the most buying power, which begs the question: What does home ownership look like for the generation that grew up in economic crises and is now in its prime home-buying years? And is there such a thing as a typical millennial homeowner? Let’s explore those questions below.
Late to the game but catching up
The Washington Post reported that in 2019, millennials, then at a median age of 31 years old, owned about 4% of American real estate by value. In comparison, when baby boomers hit a median age of 35 in 1990, they owned nearly one third of American real estate by value. So millennials were already late bloomers before the pandemic.
However, they are now catching up despite (or perhaps even because of, in some cases) of the pandemic. The share of millennial buyers rose to 43% in 2021, up from 37% the year prior, according to the 2022 Home Buyer and Seller Generational Trends report from National Association of Realtors.®
“Some young adults have used the pandemic to their financial advantage by paying down debt and cutting the cost of rent by moving in with family. They are now jumping headfirst into homeownership,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights.
Drawn to urban living but can’t always afford it
That being said, home ownership comes with compromises. According to a Forbes study, millennials are drawn to cities, “whether for work, creative stimulation, or because they grew up in one.” The Forbes survey results revealed that six out of ten millennials currently live in cities of at least half a million people, or in suburban towns close to big cities. But seven out of ten millennials who live in those areas say that their living situation is hard or extremely hard to afford.
Some people choose to keep renting to stay in urban centers, while others are willing to bite the bullet and relocate. The Bankrate Financial Security survey showed that 69% of millennials would consider relocating to a different state or moving to a more affordable but less enticing area to achieve home ownership.
House-rich and cash poor
Achieving home ownership can come with a cost though. Have you heard of the expression “house-rich and cash poor?” It paints an accurate portrait of the situation many millennial homeowners are going to find themselves in over the next few years, according to a survey by Hometap.
A home is an asset. But when all your monthly cash flow goes towards paying your mortgage, bills and debt, you’ve still maxed out your budget without much flexibility. The rising cost of living means some homeowners are one emergency away from having to pull a credit card out and taking on more debt, perpetuating a vicious financial spiral.
Less aware of home equity
An asset is still an asset, and the ability to leverage their home equity puts millennial homeowners at an advantage compared to their renter counterparts. That’s if they can understand the implications of home equity and use the percentage of their home they own to their advantage.
“Many homeowners do not realize their home provides a source of tappable home equity and are therefore missing out on opportunities to capitalize on their assets, address urgent priorities, and achieve their financial goals,” according to the Hometap survey. The results revealed that millennials are behind older generations when it comes to being aware of the options that home equity can provide.
Regrets about home ownership
Rushing to buy a home before you’re completely ready is not always the best move, but it’s not uncommon for millennials eager to finally enter the housing market before prices continue to climb.
A little over 80% of millennial homeowners said they have at least one significant regret from their first home purchase, revealed the Real Estate Witch 2022 Millennial Home Buyer Survey. The top regrets included buying a home in a bad location, not liking their neighbors, expensive upkeep, and not being educated about the home-buying process.
The bottom line
There is no cookie-cutter millennial homeowner profile, but there are definitely certain trends that paint a picture of the plight of millennials buying homes in dramatically different circumstances than the ones their parents faced. As for Gen Z, it’s a bit early to tell how that generation will be shaped by current trends, but Gen Zers are as eager to embrace home ownership – 86% of them want to buy a property sooner than later, according to Rocket Homes data. Whether they will be prepared for it is another story.