Millennials are rapidly changing the way various industries go about conducting business, and purchasing a home is no different. According to a 2019 Forbes article, although millennials have made up the largest percentage of homebuyers for the past five years, compared to previous generations such as the baby boomers and Gen X, they're still behind the home ownership curve. But, why are millennials of prime home buying age so reluctant to strive for this increasingly elusive American dream? Surely millennials, also known as Gen Y, have homeownership dreams of their own. However, the real reason they aren’t buying homes at the same rate as their generational predecessors isn’t so black and white.
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Millennials, Marriage and Home Buying
One reason millennials aren’t taking the leap into homeownership is because they’re simply not getting married in the same numbers as the generations before them. Less than 60 percent of millennials between the ages of 25 to 34 were married or lived with a partner in 2018, compared to a whopping 80 percent of baby boomers in 1967. It's also no secret that millennials are putting off having children of their own until later in life. While you don’t need to be married or have children to purchase a home, being married and starting a family generally is a catalyst for people to “settle down,” which often means buying a house.
Many unmarried millennials also still live with their parents or find themselves renting, which only further delays home ownership. When millennials do decide to tie the knot, they do so at a later age as well. Figures released in a 2017 U.S. Census Bureau report finds that millennials, on average, are getting married at 27.4 years for women and at 29.5 years for men. This doesn’t mean that members of Gen Y are averse to commitment; rather, it seems as though they do not feel financially secure enough to say, “I do,” just yet.
Massive Piles of Debt
With the rising cost of higher education, millennials are also burdened by crushing student loan debt. In 2018, student loan debt in the United States reached $1.5 trillion. Couple this debt with stagnant wages or job opportunities that millennials find themselves facing, and the picture becomes clearer. It's not that millennials haven’t the desire to buy homes, many simply are not in a position to do so. A 2018 National Association of Realtors report showed that more than 50 percent of homebuyers under the age of 36 cited student loan debt as the primary reason for delaying their purchase of a home.
Between the cost of living, student loan debt and the aftermath of the Great Recession impacting this group at such a critical point in their lives more than previous generations, it becomes easier to see why this demographic is struggling with homeownership and other important milestones. Older representatives of this generation dealt with the brunt of the financial crisis fallout with waning job markets and stagnation. Younger members of Gen Y are old enough to remember the period of recovery and are still averse to financial risk.
Availability of Affordable Starter Homes
So, even though millennials are not getting married or have the early adulthood accumulation of wealth on par with previous generations like the baby boomers, there is also a shortage of starter homes on the market plaguing them, too. According to a recent Business Insider article, in 2018, starter homes made up only 20.9 percent of available housing in the United States.
Real estate investors also play a role in the lack of affordable starter homes on the market. Of the percentage of starter homes available for sale nationwide, real estate investors bought up approximately 20 percent of them in 2018. Because investors often pay cash for these homes, millennials are finding themselves unable to compete with savvy real estate investors willing to pay cash for a property that they – as first-time home buyers – would have to finance.
Bucking Traditional Housing Trends
When it comes to shaking up the status quo, Gen Y has it covered. Not all of the reasons why millennials are unable to purchase homes come down to finances. Some millennials are strategic in their delay in realizing the "American Dream" and just aren’t interested in buying homes, yet. It's no secret that millennials are waiting longer to purchase their first home. But when they do, many are eschewing traditional starter homes altogether and opting to save their money for a longer time to put towards a home they really want.
Millennials don’t tend to prefer the homes their parents envisioned and built as dream homes. Large McMansions hold very little appeal to millennials as evidenced by this generation’s lack of desire to take them off the baby boomers’ hands. The large, status symbol homes once coveted by older generations as dream homes linger on the housing market as millennials opt to keep renting or living at home with parents rather than buying a home that doesn’t really appeal to their sensibilities or lifestyles.
Business Insider reports that in certain markets like Los Angeles, there is a surplus of large homes and mega-mansions listed upwards of $20 million. True, not everyone is looking for a large, multi-million dollar home, but in 2017, homes ranging from 2,900 to 4,000 square feet were viewed up to 45 percent less on Realtor.com and sold up to 73 percent slower than smaller, single-family homes.
Read More: Buying vs. Renting: A Pros and Cons List
- Investopedia: The Real Reasons Millennials Aren't Buying Homes
- Business Insider: More Millennials to Buy Houses in 2020, but not Enough Starter Homes
- Business Insider: Millennials' Homebuying Choices Are Changing the American Dream
- United States Census Bureau: For Young Adults, Economic Security Matters for Marriage
- Forbes: How Millennials Are Revolutionizing The Home Buying Process
- Business Insider: Meet the Average American Millennial, Who Has an $8,000 Net Worth
- Business Insider: Millennials Are Wiping Out the Starter Home in 3 Key Ways
- PocketSense: Finding the Perfect Starter Home
- PocketSense: 10 Habits that Financially Successful People Have
- PocketSense: Saving for Your First Place