Homeownership has been a cornerstone of the American dream. With Average new home sales now topping $356,200, the dream of homeownership has become daunting for Millennials. The idea of becoming a first-time homeowner seems to be more of an illusion than a pillar of the American experience.
Millennials are the largest generation in the US workforce and are shifting the tide on the timing of traditional life-stage purchases. It is not that they don’t want to own their own home, but the weight of ballooning student loan debt, consumer debt and urbanization has shifted the Millennial outlook away from traditional homeownership.
Many Millennials don’t seem to think buying a house is a necessity, as once advertised by previous generations. Whether based in denial or fact, housing trends among Millennials are changing the norm. Here are five reasons Millennials aren’t subscribing to the traditional mantra of first-time homeownership:
1) New Housing Isn’t For Us
Despite the headlines about the housing market surging, people in their twenties and thirties don’t feel they can participate in the boom. There is a disconnect between what we read in the news and what we are experiencing in reality. Surveys conducted by the National Home Owners Association show that less than 20% of the new home construction over the past several years was dedicated to “entry-level” properties. This is actually down from the pre-recession levels of over 30%. From a holistic market perspective, a 10% decline in new home sales is truly a significant number. In short, houses are literally not being built for the Millennial market.
Why is the housing market doing so well, you ask? It’s because of our parents. Developers have shifted their focus to building larger dwelling houses that cater directly to the established and affluent baby boomers. Until there is a shift back to building affordable first-time homes, this trend is likely to continue.
2) Down Payments Are The Worst
Being part of Generation Y definitely has its benefits, like being the most tech savvy people around. However, we also have major burdens, one of which is our level of debt. Student loan debt and consumer debt restrict our ability to save for the recommended 20% down payment for homeownership. The average sales price for new homes sold in March 2016 was $356,200. With some quick math, you can see the average Millennial needs to accumulate $71,240 for a down payment for the average house. Best of luck with that.
“Young workers face a lot of hurdles on the way to homeownership, including saving for a down payment in the first place and deciding where and when to settle down.” said Zillow’s chief economist, Svenja Gudell.
With most Millennials tending to live in large urban areas, where the housing prices tend to be higher than the national average, the practicality of buying a house is quickly dismissed. Some Millennials are taking a non-traditional approach and living at home longer. According to Forbes, for the first time in over 130 years, more Millennials are living with their parents than with significant others. For the few Millennials who are buying houses, their time at home servers as a strategic move to allow them to save enough cash to afford their down payment.
3) We Are Delaying “The Family”
With major cultural shifts occurring, Millennials don’t feel the need to be strapped down by purchasing a first-time home. Not only are Millennials pushing “adulating” to later in life, we honestly don’t quite see the need for the mortgage and the giant house. Thanks to Personal Finance advocates like Richard Kiyosaki, author of Rich Dad Poor Dad, a home mortgage is now viewed as a “liability” to a family and not quite the “asset” it once was considered.
In today’s fluid economy, Millennials value flexibility and mobility over security and stability. According to data from Pew Research, the median age of marriage is at an all-time high of 29 years old for men and 27 years old for women. This has delayed the formation young families. Therefore, the pressure to find a house and settle down to long-term employment isn’t quite what it used to be. We are thankful for that, because honestly, we can’t afford it.
4) Rental Options Are Abundant
While Millennials are not warming up to the new housing market, they are doing quite well in subscribing to the renter’s market. Even though rents are rising, urban-based Millennials are left with the option of finding an “affordable” place to rent. In fact, the cost of renting is rising faster than inflation. This leaves Millennials paying a larger percentage of their take home income on housing.
While rents are still high, they are not high enough to incentivize saving for a home mortgage down payment and often impede the progress towards saving for that goal. Additionally, after watching our parents struggle during the time following the economic collapse of 2008, many believe homeownership is not worth the risk. And if renting an apartment doesn’t work, there is always mom and dad’s house (see Reason 2).
5) It’s The Economy Stupid
As with most generations, our outlook and consumption patterns are often driven by the economic conditions of the economy in which we came of age. Many Millennials were graduating from college or newly minted in the job market during the economic collapse of 2008. Over the last decade, salaries have been stagnant and economic growth anemic. Signs of recovery have been slow. Even the President of the Federal Reserve Bank of New York is concerned about the long-term economic outlook. As a result of this slow growth, our generation has been patient about realizing the American dream of homeownership. Instead the focus has been on debt reduction, either student loans or credit card debt. Until the economy fully turns around, Millennials out of necessity will be patient – waiting for their turn.
While there are numerous reasons Millennials are not buying houses, as a generation we still wish to one day own our own home. With rising housing prices and mounting debt, we will be a generation known for our patience before taking the plunge into homeownership. And for most of us, that is just fine.