Thanks to the ever-increasing cost of a home, millennials are coming of age at a time when a house that once cost $150,000 in 1998 is now worth almost $350,000 twenty years later.
Couple that with the fact that most millennials have huge student loan debt to contend with and it’s clear to see that the odds are stacked against this generation when it comes to buying a home.
Unfortunately, they also have to deal with a difficult job market, which is nothing short of rough. On top of that, the amount of starter homes or mid-priced properties in the real estate market is becoming ever-so-scarce now that developers are snapping them up to build rentals instead.
Let’s take a look at how these and other reasons are preventing millennials from purchasing a house.
Why Most Millenials Can’t Buy a Home
Most of the baby boomer generation can attest to the fact that it was much easier for them to purchase a house and most of them did so as soon as they got a job, which was often in their early twenties. As a result, a lot of baby boomers today have multiple properties that they purchased at a fraction of what they’re worth today. But why can't millennials do the same? Even if they want to buy a home?
Millennials are not interested in the permanent commitment of a mortgage; millennials are facing huge amounts of student loan debt that makes buying a home impossible; millennials have seen older generations burned by home ownership and want no part of it.
These are the common rationales that attempt to explain the fact that home buying on the part of millennials is down in comparison to previous generations at the same ages. These rationales go on to say that millennials want to be free of obligations and would rather live in a cool apartment in an urban area that allows a great lifestyle and mobility.
Several surveys in the past couple of years indicate that the rationales above do not really hold true.
Some surveys report that millennials would actually love to own their own homes. So, the idea that they want to be “free” of obligations may not actually hold true.
So, what is the real reason?
Millennials are Getting Married Much Later
The reason for home ownership among millennials being at a historic low has everything to do with marriage. Millennials are simply getting married at older ages. According to a Zillow survey, millennial couples who are married and with two incomes are buying homes at a rate close to historic norms. But, because more millennials are getting married much later, the generation as a whole is way behind in home ownership.
Between 1960 and 2011, the average age of marriage went up by six years for both sexes. And once the 2008 financial meltdown hit, marriage was put off even further, as college grads had a tougher time finding career employment with decent salaries.
Later marriage means later home buying, so it is certainly possible that this generation will eventually purchase at the same rate as previous generations. And the generation that follows, according to another survey, believes that home ownership is a key factor in achieving the American Dream.
Others studies show that married individuals are 18% more likely to purchase a home than their single counterparts. Owning a home is often seen as a symbol of stability and shows that you’re ready to spend the rest of your life with someone.
This obviously doesn’t bode well for millenianls, most of whom are eschewing marriage altogether or are putting it off for much later in lieu of career advancement.
This is in stark contrast to the baby boomer and other previous generations where women were expected to get married and have their first child by their early 20s. Nowadays, women tend to marry in their 30s and even later (or not at all).
Having a child is another motivating factor for home ownership, and research shows that it increases the likelihood of home ownership by up to 6%.
Where Millennials Want to Buy
Here is another stereotypical assumption that may not, in fact, be totally true. It is assumed that married millennials want a “cool” house in an urban area, and gentrification of old neighborhoods in urban areas is a real thing. Young millennials couples are “into” gentrification, evidence shows, until they begin a family.
Once the kids begin to come, millennials look for housing in suburban areas. And in many attractive urban areas, such as San Francisco, Atlanta, and even New York, life is expensive, and even more so when children come along. In general, tough, millennials who decide to have children are far more likely to buy homes in the suburbs than those who choose not to have families.
What Millennials Value in Housing Environments
While the evidence suggests that millennial families are moving to suburban areas, they do have certain criteria. And that criteria includes convenience that is important to their lifestyles. Can they walk to the park and to a Starbucks?
Builders are responding to these demands by constructing “mini cities” in suburban areas – large housing developments with small shopping areas, pools, clubhouses, and fitness centers, libraries, and even shuttle busses to transport kids and adults throughout the neighborhoods. These neighborhoods provide the convenience and accessibility that millennials crave.
Quick Turnarounds are the New Norm
Millennials are not “wedded” to companies they go to work for, and they should not be. Those companies are often not “wedded” to them either. Recent employment studies who that millennials change jobs often, as often as 1 ½ to 2 years, and such changes often mean changes in geography.
So, if millennials purchase homes, they are often looking for a quick turnover with the potential to make a profit and move on. They are not into a mortgage or a home for the long haul.
Millennial Financial Situations Demand New Mortgage Products
Coming up with a down payment is tough for millennials. Chances are, both partners in a marriage have student debt, and that can mount up to well over $50,000 between the two of them.
In response, many mortgage lenders have come up with new loan packages with far lower down payment requirements, and millennials are taking advantage of them.
Millennials are Tech-Savvy Buyers
Here’s the thing about millennials. They have grown up with their devices; they are experts at researching anything to find what they need. In college, they used their devices smartly, to conduct research, to find academic help they needed, and to organize their lives. They count on their connectivity for everything.
Millennials shun the use of real estate agents to look for a home. With Zillow, and other sites like them, the search for homes and for mortgages is increasingly becoming digital, as opposed to physical. This has forced realtors and real estate companies to design apps for this “on the go” generation. They search without personal help.
The same goes for mortgage lenders. To remain relevant, they must offer online qualification and application, and they must process and underwrite loan applications quickly. Failing to do so simply means borrowers will go elsewhere.
Disruption of an Industry
Technology has disrupted a number of industries, and the real estate and mortgage niches are no different. Millennials will buy houses as they age, but they will buy them differently. Builders, real estate professionals, and mortgage lenders need to take heed if they are to survive.
Poor Spending Habits
Aside from a hostile job market and high home prices, there is another reason why millennials are unable to buy a home. According to a research report from the Urban Institute, most millennials are not interested in buying property and are not even saving up for it. Instead, they spend most of their funds on things like vacations and status symbols.
“Most millennials also tend to rent in pricey locations as well, which makes it difficult to save up for that initial home deposit,”
Says Thomas a financial advisor at csbgroup.com. In fact, research shows that 30% of a millennials income goes towards their rent.
To get a good view of the bigger picture, it’s important to consider both sides of the debacle. There are those that argue that millennials have increasingly poor spending habits, preferring to spend their money on nights out and holidays than save for a home. Of course, this argument is somewhat feeble, especially when considering the expenses many millennials are lumbered with.
For one, millennials are burdened with high student debt from degrees with low employability prospects. This means they spend many years at university studying for something that won’t pay them back immediately, missing out on an early career.
Subsequent unemployment or low paying part-time employment can follow, and obviously, the property ladder isn’t even close for such people. It’s a trap with a heavy financial cost.
According to research that was conducted by the Urban Institute on the rate of home ownership among millennials, members of this generation that have higher student debt had a decreased chance of owning a home. This makes it very difficult for millennials to procure a home loan, as banks view their student debt as a major risk factor.
Positive Role Model
It seems like having a positive role model plays a role as well because statistics indicate that homeownership rates are higher in millennials whose parents were homeowners than those who weren’t. To the former group, homeownership is a symbol of growth and stability.
If you’re ever on social media then you’ll have noticed that most millennials prioritize traveling and exploring the world instead of setting down roots. In fact, there is an ever-increasing trend of “van travel” whereby millennials are converting vans into livable homes on wheels in order to travel and live anywhere in the world.
Not only does this fulfill the millennial's desire to travel, but it provides them with some semblance of a home, thus reducing their aspiration for home ownership.
Increased Home Prices
According to real estate experts, when millennials purchase a home, 25% of their monthly income ends up going straight to household debt, whereas 25 years ago household debt only amounted to 15% of the total household debt.
House prices in the UK are baffling, to say the least. The prices rise so few young adults can afford them, then crash at the expense of the sellers and estate agents. There’s no middle ground here and someone is always ripped off, but nine times out of ten it’s the millennial taking the brunt of the bad luck. Even the lucky few who purchase a house will rarely be happy about how it came to be.
However, while millennials can click here for some financial support, the hard truth is that they shouldn’t have to. Mortgages are brilliant, but if too many people start utilizing them the money will simply run out.
Most young adults working steady jobs should be able to purchase their own home with their own money and live comfortable and happy lives, but it’s a prospect that becomes less realistic as time goes on.
To secure a home, a good job is required. A steady income is needed not only to purchase the home but to furnish it, carry out any maintenance or renovation works, pay a mortgage and pay any tax and stamp duty as may be required.
Consequently, even though house prices are high, owning a home is by no means as easy as handing over a single check; it requires consistent payments to maintain and to own.
Nevertheless, Millennials are earning far less in comparison to past generations, despite many more today investing in degrees and other additional education. Obviously, this is a startling statistic, as it shows a lack of parity between the experiences of young adults and older generations.
The former will work 9-5 but be stuck in a rented flat with no hope of moving on any time soon. Their last remaining hope is presumably inheritance fees, which for most won’t arrive until their parents have passed away a few decades later.
In a Nutshell
As you can see, millennials have multiple odds stacked against them when it comes to realizing financial freedom, and this contributes greatly to their ability to buy a home. Other factors such as prioritizing travel and career advancement over stability and marriage, also add to the problem, and only time will tell if the situation will improve.
It's true. Millennials and mortgages are not a match made in heaven. Millennials are prolonging the home buying process, but for good reason. You can’t earn any real money without housing, and you can’t have housing without money. This is the agonizing double bind that the millennial generation is facing, and viable solutions are becoming harder and harder to come by. It’s a bottlenecked scenario, and millennials are struggling to find a firm foothold for a positive future.