Why homeownership is declining among millennials
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A 2018 report by the Urban Institute found that the millennial homeownership rate sits significantly below that of other generations. Homeownership among millennials, aged 25 to 34, today is 8 percent lower than that of baby boomers at that age and 8.4 percent lower than Generation X.
This decline in homeownership and young homeowners cannot be attributed to young people not wanting to own homes. The annual Homebuyer Insights Report by Bank of America, released in fall 2018, held that 72 percent of millennials (aged 24 to 41) consider homeownership a “top priority,” above traveling, marriage, and children. So how can we explain the low homeownership rates among young people in America?
Here are a couple of reasons why young adults buying homes is harder to come by today.
They can’t afford it.
Student loan debt in the U.S. hit $1.5 trillion in 2018, burdening most graduates with $30,000 or more in student debt even before they enter the workforce and have a steady income. Entering the housing market just isn’t an option.
The National Association of Realtors and American Student Assistance reported that student debt can delay homeownership among millennials for about 7 years, and the Urban Institute added that a student loan of $50,000 to $100,000 reduced the chance of homeownership by 15 percent.
In addition to student loan debt, tighter mortgage lending standards since the recession and little credit history make it impossible for millennials to even dream about being homeowners. Not to mention, salaries aren’t increasing proportionally to housing costs, which means most young professionals struggle to pay for all the costs of city life solely with their income.
They’re stubborn about where they live.
With homeownership seemingly out of reach because of student debt, millennials have flocked to urban centers — more notably in recent years — to grow their careers, earn a stable income, and push back plans of being first-time buyers.
Today, an extremely high volume (about 88%) of millennials prefer living in major metropolitan areas. These highly educated, young people are more interested in working and renting in high-cost cities than owning a home and living in a suburban or rural part of the country. They feel as though they don’t have a choice, as big companies and better job opportunities are concentrated in these urban cities.
This, however, constrains the housing supply, pushes up rental and housing prices in cities that have always been expensive, and, in turn, makes it harder for young people to save money for a down payment and afford a mortgage. Despite this, millennials continue to swallow the costs and avoid homeownership for years.
They have a different set of values.
It’s a well-known fact that millennials are waiting longer to move out of their parent’s house, get married, and have kids. In 1990, 26 percent of people aged 18 to 34 lived with their parents, whereas in 2015, a sizable 35.5 percent did.
The average age of marriage is currently 27.4 for women and 29.5 for men, according to a 2017 U.S. Census Bureau, signifying a contrast between the numbers from 1990 and 1960, which are 23 and 26, and 20 and 22, respectively.
This social shift indicates that millennials feel less of an urgency to settle down and become homeowners. Instead, they are spending more of their younger years, living in expensive cities, earning money, making payments toward their student loan debt, and at some later point, hopefully, owning a home.
They don’t trust the market.
Millennials have witnessed the recession and know that the housing market is unreliable. They don’t want what happened to their parents to happen to them, so they’re skeptical. They saw households get evicted from their homes and banks manipulating the housing market during the Great Recession.
It just comes down to being scared of investing in real estate, of suffering another recession, and of losing their jobs and all of their money. They already have student debt, delaying them from having enough for a down payment, but the chance that another financial crisis might take everything they’ve worked for makes homeownership an unpopular investment.
They prefer to rent.
In contrast to homeownership, renting is easier and more suitable for millennials. For one, the process for renting is much simpler than buying a home: you simply tour an apartment or home, submit an application and security deposit, and move in within a matter of weeks.
A trend among millennials is job hopping. Ninety-one percent of young professionals expect to stay at a job for less than three years, so the ability to move frequently is one of the major pros for renting. Additionally, people these days are more willing to sacrifice homeownership for more money to spend on experiences.
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