Is the American Dream of Homeownership Available to Millennials?
In 2018, the homeownership rate of millennials was roughly one in three, a number that was significantly lower than that of baby boomers or Generation X before them. In fact, when compared to past statistics, it equates to several million more adults of working age that are not living in their own homes. Whether they’re still living at home, renting an apartment, or finding some other form of housing, the numbers imply that Millennials are simply not purchasing their own homes at anywhere near the same rate as has been done in the past.
The question that naturally arises is whether Millennials really have the “American Dream” of homeownership available to them or not.
While many are quick to point fingers, accusing generational trends, cultures, and attitudes for the shift, the more information that becomes available, the more complex the answer seems to become. Here are a few of the major concerns that have surfaced in recent years as primary issues stopping Millennials — both by choice and against their will — from buying homes.
The Cost of Buying a House
While buying a home has traditionally been an important and expected part of life, that doesn’t change the fact that its an expensive business. Not only do you typically need to save up between 3.5% and 20% of a home’s value before making a purchase, but there are numerous hidden costs and responsibilities that go into caring for a home, as well. If a new homeowner is coming from a renting scenario, they may not be able to fully understand the extra costs that maintenance — let alone repairs — can add to the bill.
In addition, the cost of houses themselves has continued to rise. Urban centers have felt the pressure of things like gentrification for quite a while now, while the slow increase in costs has even crept all the way out to many rural areas at this point, exacerbating the strain on what are often already stressed small-town economies.
The reality is, buying a house anywhere is expensive at this point. If you already have a house, you can offset the higher costs by the increase in your own equity. However, if you’re a Millennial renter, chomping at the bit to buy your first home, the costs can be prohibitive. This leaves them few options. They can try to negotiate their current rent or try to move to an area with lower costs of living in order to begin setting money aside for a house, but even then the struggle is profound.
The Financial Struggles of Millennials
The need to be ready for both the upfront and the hidden costs of home ownership are already bad enough. However, millennials are also facing countless other financial pressures that make saving up for that down payment incredibly difficult. For instance, wages have remained largely stagnant for decades, costs of living are constantly on the rise, and many millenials are opting to live in city centers, which can be very expensive.
In addition, student debt is crippling many millennials’ ability to save for a home. It’s estimated, for instance, that just 23% of college graduates who don’t have student debt will be able to save enough for a down payment on a home within the next five years. For those still dealing with debt, the percentage drops by nearly half. On the other hand, for those without college education at all, the number drops by half yet again to a miserable 6%, putting the pressure on millennials to attend college in the first place, and thus perpetuating the debt cycle.
Naturally Lower Priorities
Finally, while things like housing costs and student debt are often touted as major factors in the struggle for millennials to attain the status of homeowner, there are also other, more subtle factors at play.
It’s no secret that many millennials are starting families later, often waiting until their early 30s. This has also naturally led to many young adults living with parents longer as they attend college and then deal with the financial repercussions of their academic careers. In 2014 it was estimated that 36% of young adults still lived with their parents, though not forever. They were typically getting their financial affairs in the best condition they could before launching out on their own at a later age.
All of these factors have pushed the average age of first-time home buying millennials up higher than was typically seen in the past. But, while millenials are holding off on families and delaying their independent lives into their 30s, they still do plan to pursue purchasing a house at some point in the future.
The Answer: Yes and No
The cop-out answer is hardly satisfying to the casual reader, and it’s even less so for millennials themselves. However, it’s hard to formulate a solid conclusion to the question. On the one hand, yes, there technically is the possibility of finding a home that a young family can afford. On the other hand, rising housing costs, hidden fees,
The question that remains, going forward, is if the numbers will course correct as millennials collectively push into middle age or if their newly learned renting habits will stick and the numbers will continue to remain lower than in the past.