Owning a home has been part of the American Dream for decades, and it is one of the biggest investments many people plan for in their lifetime. When home prices and interest rates go down, demand increases as people flock into the housing market to purchase a new home.
However, there is one demographic that isn't necessarily setting its sights on the milestone of homeownership right away even in today's low interest rate environment. In fact, more Millennials are delaying the purchase of their first home.
But why? Read on to find out more about what's keeping this group at home with their parents and why they aren't buying homes at the rate of previous generations.
Key Takeaways
- Millennials are not buying homes as readily as the previous generation.
- Delaying marriage and having children is keeping many Millennials at home with their parents.
- The burden of student debt is preventing many young people from saving up for a down payment and buying a new home difficult as the affordability gap widens.
- Tighter lending criteria can also make homeownership unaffordable or virtually impossible for those without much credit history.
1. Affordability
Mortgage payments, as a rule, should not exceed 25% of a homeowner's monthly gross income. Anything above that suggests they cannot afford the home. This means buying a home will not be as easy for Millennials as the affordability gap widens between home values and income levels.
According to the National Association of Realtors (NAR), the home affordability index rose again above 100 in January 2020. In 2015, the index was 109.3, and in 2018, the value dipped as low as 92.5. An index value of 100 means that a family with a median income has exactly enough income to qualify for a median-priced home. The index isan average across the U.S., so there are areas of the country that are more affordable. The question is whether or not Millennials are willing to relocate and leave jobs, friends, and family in order to buy a home.
2. Not Married (or Partnered) Yet
In 2018,less than 60% of people aged25 to 34 lived with either a spouse or partner versus 80% in1967.In fact, people now are getting married later, with the average marriage age at 27.8 for women and 29.8 for men, according to 2018 figures from theU.S. Census Bureau.
Meanwhile, the average age of a first-time mom is 26, according to the Centers for Disease Control (CDC), though the age increases for college-educated women and women in urban areas.The changing dynamic of getting married and having children means Millennials are stayingat home with family longer and delayingthe purchase of their first home.
"Life events suchas getting married or having children are typical triggers to buying a home. The longerthis age group lives with parents or independently, the more homeownership will bedelayed," statedBank of America in a report about Millennial home buying trends.
Getting married later in life and delays in having children are helping increasethe percentage of Millennials living at home or with relatives to 22.5% in 2018—an increase ofnine percentage points since 2005.
3. High Levels ofStudent Debt
Student debt hitalmost $1.6 trillionin the U.S. by the beginning of 2020. As such, it's now become a burden on Millennials trying to enter the housing market. This same group is also contending with stingy wages and raises in much of the job market, putting added strain on paying off those loans.
According to NAR, more than 50% of home buyers under the age of 36 said that student debt delayed their homebuying. Apartment List estimated that while college grads without student debt needed 7.6 years to save for a 20% downpayment in 2018,those with debt needed to save more than four years longer.
4. Tighter LendingStandards
Bankstightened credit underwritingto reduce risk. They also double-downed onthe 20% down paymentrule for homebuyers. But as prices rise, it is taking Millennials longer to accumulate enough cash to put down on a home.
"Remember that the bulk of the current 25- to34-year-old cohort startedtheir careers during the financial crisis and early stages of the recovery, when theeconomy and labor market were fragile," Bank of America noted.
While mortgage affordability programs may offer loans with less than 20% down payments, lenders often charge higher interest rates on these loans to offset the greater default risk.Additionally, most of these mortgages will require that Millennials take outprivate mortgage insurance (PMI), making monthly payments even higher.
5. The Lure ofBright Lights
Millennials continue to flock to cities in large numbers. Pew Research found in 2018that 88% of Millennials now live in metropolitan areas.Whether it is a social movement or the lure ofgreaterworkopportunities, Millennials are moving to regions with a higher proportion of renters compared to homeowners, pushing rental prices up higher in the urban centers where they prefer to live. So far, Millennials seemunwilling to commute or even own a backyard. According toBuildZoom, new home sales within five miles of the centers of the 10 most densely citieshave exceeded year-2000 levels but sales are about 50% below 2000 levels10 miles outside the city.
Much has been made of Millennials and their spending habits in the big cities—new clothes, Amazon Prime, the latest iPhone, and daily Starbucks.However, data from the Bureau of Labor Statistics (BLS) debunks this notion a bit. Expenditures on apparel and entertainment fell 1.4% from 2004 to 2015.The biggest decrease in Millennials' shopping basket—spending on owned shelter—dropped 2.6%. Meantime, spending on rental shelter had the largest increase, rising 3.2%.
The Bottom Line
Home prices continue to rise in the U.S. and while Millennials are delaying homeownership,evidence suggestsit is not completely out of reach. While some financial constraints remain—student debt and down payments—social changes in how young adults are living have pushed homeownership to record low levels and have seen the average age of Millennials staying at home rise.
FAQs
Home listings remain scarce. A lack of inventory was a key driver for the bidding wars and skyrocketing home prices of the pandemic years. There were too many buyers and not enough homes for sale. Now, demand has slowed, and inventory levels seem to be making a modest comeback.
Why people are not buying houses? ›
Home listings remain scarce. A lack of inventory was a key driver for the bidding wars and skyrocketing home prices of the pandemic years. There were too many buyers and not enough homes for sale. Now, demand has slowed, and inventory levels seem to be making a modest comeback.
What percentage of millennials want to own a home? ›
For the first time, more than half of millennials own a home. The rest are finding it increasingly out of reach. The millennial homeownership rate hit 51.5% in 2022, US Census data show.
Will Gen Z ever be able to afford a house? ›
Gen Z's Future in Real Estate Is Uncertain
Any generation's ability to own a home ultimately comes down to whether they can afford a down payment plus closing costs, qualify for a mortgage and handle the responsibility and costs that come along with owning a home,” said Scott Krinsky, partner at Romer Debbas, LLP.
What is a reason cited for lower homeownership rates among millennials? ›
Despite the availability of homes and purchasers, millennials are 8 to 9 percent less likely to own a home than other generations were at the same age. Some of this change is due to demographic pressures, such as delayed marriage and childbirth, as well as millennials' preference to live in high-priced coastal cities.
Why is it hard for millennials to buy a house? ›
Key Takeaways. Millennials are not buying homes as readily as the previous generation. Delaying marriage and having children is keeping many Millennials at home with their parents. Tighter lending criteria can also make homeownership unaffordable or virtually impossible for those without much credit history.
What are 3 disadvantages to buying a house? ›
Disadvantages of owning a home
- Costs for home maintenance and repairs can impact savings quickly.
- Moving into a home can be costly.
- A longer commitment will be required vs. ...
- Mortgage payments can be higher than rental payments.
- Property taxes will cost you extra — over and above the expense of your mortgage.
Homeownership rates among millennials (28%) and Gen Xers (27%) when they were 25 registers lower than Gen Z (30%), according to the Seattle-based real estate brokerage, which said 32% of baby boomers owned their home at 25. Gen Z is comprised of people born between 1997 and 2012.
Are Gen Z buying more houses than millennials? ›
According to new Redfin data, Gen Z is ahead of Millennials when it comes to homeownership, with 37% of Gen Z respondents already owning a home or planning to purchase one within the next five years. Only 32% of Millennials said they have taken that step or plan to within the same time frame.
What is the average age for millennials to buy a house? ›
Homeownership rates by generation
Younger millennials (23 to 31 years old) comprise only 18% of the share of homebuyers. 60% of older millennials (roughly 40-42 years old) own a home.
WASHINGTON (March 28, 2023) – The share of baby boomers has surpassed millennials and now makes up the largest generation of home buyers, according to the latest study from the National Association of Realtors®.
What generation will not get Social Security? ›
About 23% of Gen Z (those born in 1997 or later) and 26% of millennials (born between 1981 and 1996) believe there's little chance they'll be able to rely on Social Security to fund their retirement, according to Northwestern Mutual's 2020 Planning & Progress Study.
What percentage of millennials make over 100k? ›
A 10th of millennials said they already earn $100,000, compared to 9% of Gen X and 11% of baby boomers – the only income bracket where boomers earn more than millennials.
Why are millennials renting instead of buying? ›
RentCafe chalked it up to a matter of “comfort and smart investing.” Owning a home can come with more than its fair share of maintenance and costly repairs and upkeep. Then there's the flexibility renting offers one to move from city to city for career opportunities.
Why do millennials prefer renting instead of buying? ›
The financial barrier of homeownership started with a lack of personal savings. The majority of Millennial renters surveyed said they have nothing saved for a down payment. On average, Millennials with down payment savings have $12,773 set aside, according to Apartment List.
What type of homes do millennials want? ›
The majority of millennials likely grew up with smart technology and are looking for homes that come with smart features such as smart locks, home security, automatic lighting, and Nest thermostats. They want to be able to control their heating and cooling system, as well as appliances, with an app. Updated kitchen.
How are millennials affecting the housing market? ›
By contrast, millennials, who recently became a homeowner majority generation, saw their share of the market shrink in 2022. Millennials accounted for 28 percent of home purchases last year, down from 43 percent in 2021, when they made up the largest share.
Why don t more people own homes? ›
“Non-homeowners cite insufficient income, high home prices, and not being able to afford a down payment or closing costs as the most common barriers to becoming a homeowner,” Bankrate.com's chief financial analyst, Greg McBride, said in a statement.
What is the most common age to buy a house? ›
In the US, first-time homebuyers are, on average, 33 years old. The average age of homebuyers overall is 47. These numbers are drastically higher than when data taking first began in 1981. Here is what you should know about the shifting demographics of homeownership in the US.
Is it financially smart to buy a house? ›
In the long run, owning a home is a good investment. When you rent, your money goes to your landlord, whereas when you put your money toward a home, you can see a return on your investment over time.
High Upfront Costs
Closing costs on a mortgage can run from 2%-5% of the purchase price, including numerous fees, property taxes, mortgage insurance, home inspection, first-year homeowner's insurance premium, title search, title insurance, and points, which are prepaid interest on the mortgage.
Is it better to buy a house or property? ›
In general, you'll likely find it cheaper overall to buy an existing home, but that also depends on the market. A home loan is less risky than a land loan, and typically comes with a lower down payment and better interest rate.
How old are millennials? ›
Gen Y: Gen Y, or Millennials, were born between 1981 and 1994/6. They are currently between 25 and 40 years old (72.1 million in the U.S.)
Do millennials own more than rent? ›
A recent study from apartment search website and research blog RentCafe reveals that the generation transitioned from renter to owner, with 52% of millennials, born between 1981 and 1996, owning a home in 2022.
Do millennials value family? ›
With the exception of family, millennials value health the most. In a recent study, 79% said family was important in their lives, followed by health and wellness at 53%, friends at 39%, spirituality at 31% and career at 27%.
How is anyone supposed to afford a house? ›
Stick to the 28/36 Rule
No matter how you finance your home purchase, most experts agree that people should not spend more than 28% of their gross income on housing expenses, and no more than 36% on debt. For example, if you earn $5,000 each month, your ideal mortgage payment should be no more than $1,400 per month.
What age do most people move out? ›
While there are a lot of factors involved, the average age when people move out of their parent's home is somewhere between 24 and 27. This makes logical sense – it's after many people have completed college and around the time when most people get married and/or are in a long-term relationship.
What age do most people pay off their mortgage? ›
While the average age borrowers expect to pay off their mortgage is 59, the number of survey participants who have no idea when they will pay it off at all stood at 16%. In 2019, 9% of those asked didn't know and in 2020, 11% gave this answer.
What percentage of millennials have a bachelor's degree or higher? ›
According to our research, millennials are the most educated generation in American history. Approximately 38 percent of millennials have a bachelor's degree or higher, compared with 32 percent of Generation X and 15 percent of baby boomers when they were the same age.
What generation will inherit the most money? ›
Generation X and Millennial Households Are Expected to Inherit the Most Over the Next 25 Years.
Gen Y: Gen Y, or Millennials, were born between 1981 and 1994/6. They are currently between 25 and 40 years old (72.1 million in the U.S.) Gen Y. 1 = 25-29 years old (around 31 million people in the U.S.)
How is Gen Z supposed to buy a house? ›
Assuming wages rise with home prices, Gen Zers will have to save around $600 a month over the next 10 years to afford a 20% down payment on a median-priced home. However, they think they'll need to save just about $370 a month.
How do I get the $16728 Social Security bonus? ›
To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.
Will Social Security still exist in 2050? ›
Will Social Security still be around when I retire? Yes. The Social Security taxes you now pay go into the Social Security Trust Funds and are used to pay benefits to current beneficiaries. The Social Security Board of Trustees now estimates that based on current law, in 2041, the Trust Funds will be depleted.
How many people have $100000 in the bank? ›
According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement. But what's more concerning is the number of people who haven't saved anything yet.
How many rich people live paycheck to paycheck? ›
In December 2022, 51% of people who earn more than $100,000 reported living paycheck to paycheck, which is 7% more than the previous year, according to a survey from financial insight and advising companies PYMNTS and Lending Club.
What is the average wealth of a millennial? ›
Over the same period, stats show that the average net worth of millennials increased to $127,793, which is up from the $62,758 average in the first quarter of 2020. Interestingly, the report shows that most millennial net worth is tied to real estate they own.
How much do millennials pay in rent? ›
RENTCafé: Millennials Spend 45% of Their Income on Rent | Multifamily Executive Magazine.
Why do millennials prefer Airbnb? ›
Airbnb has long been popular among millennial travelers because it provides the unique, local travel experiences that millennials crave. In fact, 60% of all guests who have ever booked on Airbnb are millennials, with a YOY growth rate of 128%.
Do most millennials own homes? ›
“Today, the median millennial is a homeowner,” said Warnock in the report, “with the latest millennial homeownership rate standing at 51.5 percent.”
Living in an Expensive Area
So they may rent a place in New York City, London, and San Francisco to live in because it's much cheaper than buying. Since they have cash-flowing real estate and other investments to live off of, they know the difference between a property that is an expense and an income property.
Where do millennials prefer to live? ›
Key Findings. Florida and Texas are becoming millennial hotspots. Four of the top 10 cities where millennials are moving are in the Lone Star and Sunshine States. The cities include Austin and Dallas in Texas and Jacksonville and Tampa in Florida.
Why buying is always better than renting? ›
Homeowners get to capitalize on their home's equity, which accumulates over time. They also get to enjoy tax deductions on mortgage interest payments and other homeowner expenses. Paying off your home will also enable you to live mortgage-free, and this will support a comfortable retirement.
Why is it harder for millennials to buy a house? ›
Key Takeaways. Millennials are not buying homes as readily as the previous generation. Delaying marriage and having children is keeping many Millennials at home with their parents. Tighter lending criteria can also make homeownership unaffordable or virtually impossible for those without much credit history.
What percentage of millennials have a mortgage? ›
Utah has the highest share of millennial homeowners at 59%, while California has the lowest share at 30%11.
Why has homeownership been on the decline? ›
Researchers found about half the decline in homeownership can be attributed to Californians choosing not to buy a home, whether because they preferred renting or because they stayed in college longer or had children later in life.
Why is buying a house so hard now? ›
Record-low mortgage rates, a large number of people looking for additional room, and a new surge of property speculators are among them. The fact that so much of the home-buying process has migrated online has sped things up even more.
Why aren t Gen Z buying houses? ›
Of the Gen Zers surveyed, income was the biggest challenge of buying a home, with 23.3% reporting it as holding them back from homeownership. Among other reasons, 14.6% of Gen Z reported home prices as their biggest challenge and 11.9% reported their current savings amount as a roadblock to buying a home.
What is the biggest barrier to homeownership? ›
Poor Credit History or Low Credit Score
A low credit score due to lack of credit history or an unsatisfactory record of debt repayment can be a major setback, especially when hoping to qualify for a mortgage.
What are 5 reasons the housing market is not about to crash? ›
No, most industry experts do not think the market will crash. Housing economists point to five main reasons that the market will not crash anytime soon: low inventory, lack of new-construction housing, large amounts of new buyers, strict lending standards and a drop in foreclosures.
Nine months into 2022, only 18% of households could afford the state's median priced home, the California Association of Realtors reported. And the estimated minimum annual household income needed to buy a median priced home increased from $148,400 to $192,800 over that time period.
Will 2023 be a good time to buy a house? ›
Experts say hopeful buyers should not expect today's high prices to plummet anytime soon. “Home prices won't drop in 2023,” Evangelou says.
Will 2024 be a good time to buy a house? ›
With mortgage rates declining faster than expected, home prices are likely to remain mostly flat throughout 2024. This will be good news for buyers who have been waiting on the sidelines for a good time to enter the market.
Why is Gen Z struggling? ›
At the root of this issue, the experts say, was the COVID-19 lockdowns and restrictions enforced at the height of the pandemic, many of which prohibited or restricted working from the office or workplace and attending school or university in person, which significantly impacted Gen Z's social circles as well as their ...
Why 90% of millionaires invest in real estate? ›
Federal tax benefits
Because of the many tax benefits, real estate investors often end up paying less taxes overall even as they are bringing in more income. This is why many millionaires invest in real estate. Not only does it make you money, but it allows you to keep a lot more of the money you make.
Do most millionaires pay off their house? ›
Most have paid off their mortgages. In 2020, 58% of the state's equity millionaires owned their homes free and clear. Statewide, there has been a dramatic rise in the number of Californians who have paid off their mortgages, from 1.6 million households in 2000 to 2.4 million in 2020.
Are homeowners more wealthy? ›
“A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter.” Along with these wealth gains, homeowners also saw their debt drop by 21% over the last decade, the report shows.
