In 2015, 37 percent of millennials were homeowners. Millennial homeownership was found to be down 8 points from the previous generations at the same age (25-34).
This begs the question, why aren’t millennials buying houses? Further analysis of the circumstances may clarify this question.
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Why are Millennials Not Buying Homes?
There are several factors to be considered when buying a house — the cost of the house itself, personal finance, the economic status of your country, and various other societal factors. All of these must be examined to understand why millennials aren’t buying homes.
Increased pricing on the real estate market is one plausible reason why millennials aren’t buying houses.
The New York Times, for instance, highlights Denver as one of the places where the rising price of housing is outpacing working wages.
A 2018 study by The New York Times (S&P Case-Shiller Index) showed that prices for houses in Denver rose 8 percent while there was only a 6 percent increase of hourly wages during the same period. Adding to the overall rising price of housing costs are rising interest rates.
One primary reason that millennials aren’t buying houses is debt — student loan debt to be specific.
The Federal Reserve Board of Division and Research & Statistics has found a direct correlation between the rise in student loan debt and the decline of homeownership among young adults.
They found that “a $1,000 increase in student loan debt causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s.”
With student loan debt steadily rising, we may see an even sharper decline in homeownership, as it will become challenging to take on a mortgage while paying off existing debt.
– Delaying Marriage
Millennials are breaking the traditional cycle of finding a partner, getting married, and buying a house together. Generation Y is putting off marriage, or forgoing marriage entirely, which then affects the “next traditional step” of buying a home.
Millennials might be delaying marriage because they haven’t found the “right one,” are not ready to settle down, they feel they are too young, they aren’t financially prepared, or for any combination of these reasons. Childbearing is also delayed, and lack of children has also contributed to the decline in the need for homeownership among millennials.
Baby boomers created suburbs and were comfortable residing in this way. Millennial cultural norms and values have taken a turn from their preceding generations, and a withdrawal from the suburbs to more urban areas has taken place.
City life is preferred over the suburbs by millennials because there are places to work, and, often, there are alternative modes of transportation available. Environmental issues are popular among millennials, and these values predicate choice.
Another sustainable alternative to the norm of conventional housing is found in the tiny home. Tiny homes provide the affordable, sustainable, minimalist lifestyle that is valued by the millennial generation. Although insurance is tricky for a tiny home, it is becoming a popular option among the younger generations.
Cities also offer more social interaction than suburbs. Rural areas tend to feel more isolating, while the hustle and bustle of urban areas allow for more cultural diversity and socialization — another thing valued by millennials. However, living in the city is typically more expensive than living in rural areas, which may be why millennials aren’t buying homes in city centers.
– Mortgage Crisis
2007 to 2010 was a time when most millennials were coming of age and seeing how they fit in the world. During this time, however, was also the subprime mortgage crisis — which threw the US into a financial recession.
The subprime mortgage crisis changed housing completely, and especially for millennials.
Millennials may not be buying houses because they don’t trust the housing market. Seeing the devastation done to their parents or other people all over the country, younger generations could be wary that it may happen again.
How Millennials Can Afford to Buy Homes
Despite the tensions outlined above, millennials still may want to buy homes. For this to happen, there needs to be institutional changes (as well as personal revelations) made by millennials themselves.
Private and public institutions alike can rework mortgages to make them more affordable by boosting low-income housing tax credits and housing trust funds. Other proposed ideas are to subsidize rent and ease tariffs on construction regulations.
One major change the labor market needs to see is a shift toward more realistic and modern wages so that millennials and other future generations will be able to afford a down payment on a house.
While minimum wage may seem higher than previous generations, the purchasing power of the money paid to millennials has weakened due to inflation. An inflation calculator can show you exactly how a paycheck, loan, ect., can decrease over time after inflation.
Educational institutions can create student loan forgiveness programs to give millennials the chance to be able to pay for a home as well.
Millennials will likewise need to make changes. Financial education and preparation focused on how to start reducing debt immediately, how to save for a down payment, and how to follow housing market prices, is a start.
This financial education should also include information surrounding insurance, and how to compare home insurance for the best possible price and coverage on a house.
Many factors contribute to millennial decisions not to buy a house. One could argue that it is a combination of all of the above circumstances, not millennials, that are killing homeownership.