Why Don't Millennials Own Homes?

Millennials are giving up on their dreams of homeownership at an increasing rate. According to an annual report by Apartment List, a rental listing site, 18.2% of Millennials now expect that they will rent for the rest of their lives—up from 10.7% in 2018.

The study comes during a booming housing market, making it hard to believe that Millennials are lagging behind. However, affordability remains the number one issue for most, as the vast majority of them have hardly any savings for a down payment, if at all.

With a market so hot, how are Millennials behind?

Seventy-four percent of Millennials state that affordability is their biggest hurdle to homeownership. While some admit that the lifestyle and flexibility afforded by renting have kept them away from tying themselves down with a mortgage, most feel they simply don’t have the financial means to make the big step.

With a pandemic that ravaged many parts of the economy in 2020 and an unemployment crisis that put many Millennials out of work, it’s no surprise that economics play the largest role in Millennial homebuying or the lack thereof.

Even with low interest rates and first-time buyer incentives given by lenders, none of it matters if Millennials can’t get ahead of their monthly expenses to save enough for a down payment. We’re talking about a young group, ages 24-39, that is actively dating, marrying, having children, attending classes, and beginning adult life. Tie in a pandemic and a volatile economy—it’s hard to imagine a scenario where buying a home is easy.

While it’s true that 38% of home purchases made in 2020 were by Millennials, they still fall behind previous generations at their age. By the age of 30, 48% of Gen X and 51% of baby boomers owned homes. For Millennials, it’s just 42%.

Market skepticism

The housing market has come a long way since the Great Recession, but some Millennials remain bearish on the market’s trends. “Despite a bullish housing market that has seen prices rise for over a decade, some Millennial renters whose young adult years were mired by the Great Recession remain skeptical; 21%of committed renters say that buying a home is financially riskier than renting one,” says Warnock.

Perhaps it’s a side effect of a lack of financial education in schools. A Bank of America and USA Today survey in 2016 found that just 31% of Americans ages 18-26 felt their high schools did a good job at teaching them financial literacy. It’s one thing to question the market at a particular point in time. But to completely disregard homeownership altogether because of an economic downturn that happened years before? It’s bad financial literacy.

Yet, out of the 80% of Millennials that want to own a home at some point, 75% claim to be waiting for the right moment—despite current record low interest rates and intense competition between mortgage lenders driving rates even lower.

Lack of savings

When questioned, 63% of Millennial respondents in the survey reported that they have $0 in savings towards a down payment on a house. A middling 22% said they had $1-$9,999 saved and only 15% said that they had $10,000 or more. This means on a $200,000 home—assuming the average American down payment of 6%—more than 85% of Millennials wouldn’t be able to make the purchase without reducing the deposit, likely taking on less favorable terms in exchange.

To bridge the gap, Millennials tend to expect help from their parents in making the leap to homeownership. “In this year’s survey, over 20% said they are expecting down payment assistance from family, highlighting how wealth in one generation can affect wealth in the next,” Warnock writes. “But for the remaining 80%, homeownership may be realistic only if their personal savings increase dramatically and/or they narrow their search to some of the nation’s most affordable markets.”

The disparity in wealth increases by race as well. Overall, white Millennials fare better than others, especially Black Millennials. According to the report, by age 30, 51% of white Millennials will own homes, versus 20% of Black Millennials at the same age.

The question moving forward is whether the remote economy created by COVID-19 will increase the number of opportunities for all Millennials, regardless of race or region.

Other contributing factors

High student debt

Millennials are the most educated demographic in the United States. According to Pew Research, 39% of Millennials have bachelor’s degrees, 10% higher than their parents. This rise in education leads to a longer time spent living with parents while in school, delays in marriage and childbirth, and increased student debt levels, all of which contribute to delayed homeownership.

Student debt, on its own, is the most significant factor keeping Millennials away from homeownership. By the end of 2020, student debt in the United States had surpassed $1.7 trillion, a 102% increase from 2010. On the flip side, graduates have access to a wider and better-paying pool of jobs after college, but in a year where millions of Americans have lost their jobs and many businesses are closing for good, this pool has shrunk.

Also, with lending practices tightening ever since the Great Recession, debt-to-income ratios are a burden for debt-encumbered Millennials. Getting approved for a house is hard when you’re already paying 36% of your income or more on credit debt, student debt, auto debt, and more each month.

Waiting longer to get married

Between education and culture shifts, Millennials are waiting longer to get married than any generation before, pushing homeownership farther down the line. As of 2018, women were getting married at the median age of 28, while men were getting married around 30.

This is also pushing the birth of children back, which is often regarded as a home-buying trigger.

Flocking to cities

Younger people are attracted to the bright lights of a city. Research finds that 88% of Millennials live in or near an urban center. Depending on the city, the cost of living and owning a home can be astronomical, making it extremely difficult for Millennials to make the transition from renting to owning.

For instance, in San Francisco, the median sold price of a single-family home was $1.3 million as of February 2021. For the thousands of young, highly educated graduates working in Silicon Valley, this price tag is mindblowingly unreasonable and contributes greatly to their inability to own a home.

This is just one region of the country. There are numerous other cities that make it hard to own property, such as New York City, Los Angeles, Seattle, and more. While it’s true that any Millennials are giving up on their dreams of homeownership, there’s a lot of good reasons why.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.