Home Buying for Millennial and Gen Z May Be Unaffordable?

Owning your home is essential for building wealth. However, the prices of homes make it a hurdle for Millennials and Gen Z Americans to afford one, hence an even more uphill task to achieve financial security.

The housing crash of 2008 saw a high of 14.4 % in home price growth and was deemed the worst in many years. The average annual growth rate of 4.2% observed for 4 decades is no longer near the current staggering trends. The annual home price growth rate peaked at 20% in August 2021 after increasing steadily during the pandemic. Forecasts by Zillow expect the year-over-year rate to peak at 21.6% in May and stabilize at 17.3 % by the end of the year.

Why Millennials Are Finding It Harder to Afford a Home Now

According to the American Community and American Housing surveys, there are 66 million millennials in the U.S., and they now represent 37 % of the total national homebuying market.

The housing market is influenced by the economy's state, interest rates, real income, and other changes. You might find it harder to buy a home because of common reasons besides student debt, housing prices, and rising tuition costs.

State Of the Economy

The aftermath of the pandemic has seen many layoffs, limited resources, and generally a slow economy. You may not be able to buy a home due to the slow economy that has made the supply of money more restrictive. Lenders that would have given you loans on good terms are now more restrictive.

Interest Rates

High inflation rates can force the federal government to increase its benchmark short-term interest rates for lenders, who raise the rates for you. This makes mortgages very expensive. These high prices make it hard for you to afford a home.

Housing Prices

The rising prices of buying a home have made the rental prices go up as well, and this makes the idea of saving for a down payment for a house to buy later very hard because the money you could have set aside for that purpose is eaten into by the rent you are paying.

Student Loans

If you are 30 years and below, Gen Z, or an older millennial you could still be servicing a student loan ten years after completing college. This may make buying a home within the same period difficult as the prices continue skyrocketing.

Home Prices

Reports by Reuters have shown that a record shortage of homes to purchase, combined with unexpectedly explosive demand during the pandemic, sent the average house price up 17% last year, the highest annual rise in at least two decades. The few houses available are sold at very high prices after numerous bids.

The above factors may make you not afford a house right now, but in a few years, with the opening of borders, relaxation of pandemic rules, and new investors, The millennials will afford to buy their dream houses.

Bottom Line

While owning a home is a desire for many millennials and Generation Zs, the market structure makes it difficult for these generations to enter the property market. However, you don't have to buy in highly price-competitive locations; consider areas away from major cities that are sparsely populated, and don't buy under pressure when everyone is scrambling for the few that are there. Weigh your options wisely, look at different mortgage options, and choose one that works for you. All is not lost.