It may come as no surprise that among millennials who have intended to buy a house this year, 92% said in a recent survey that inflation has impacted their goal.
Millennials — who are roughly ages 27 to 42 — are in their prime homebuying years. The typical first-time buyer was age 36 in 2022, up from age 33 in 2021, according to the National Association of Realtors.
Millennials — who are roughly ages 27 to 42 — are in their prime homebuying years.
While the combination of high home prices and rising interest rates has caused affordability issues for many buyers, the situation is gradually improving.
The median price for an existing house was $366,900 in December, just 2.3% higher than a year earlier and a drop from the $416,000 recorded last June.
How inflation has affected millennials’ homebuying plans
Saving more for a home
Millennials are at the greatest risk of becoming Boston condo-rich and cash-poor as the generation is spending the highest percentage of their monthly income on homeownership costs compared to other generations, according to a new Hometap report.
With real estate values remaining high nationwide, millennials are also the least likely to know how much equity they have in their homes or how to calculate it.
The survey of 1,000 U.S. homeowners found that 47% of respondents’ finances have been negatively impacted by the pandemic, while 77% carry at least some form of debt or financial liability.
“As we begin to emerge from the pandemic and residential real estate values remain near record levels, homeowners — especially millennials — have a great deal of equity tied up in their properties but are wary of taking on debt to access it,” said Jonathan MacKinnon, vice president of product strategy & business development at Hometap. “With the total cost of homeownership rising, and mortgage payments taking up an increasingly larger percentage of income, there is a growing need for solutions that allow Americans to tap their most important asset without going further into debt.”
• 63% of Black homeowners say they have been negatively impacted by the pandemic, compared to 54% of Latino homeowners and 43% of White homeowners.
• 52% of U.S. homeowners spend at least 16% of their monthly income on mortgages.
• 53% of millennials do not know how much equity they have in their homes and 55% don’t know how to calculate it.
• 59% of millennials do not view their home as an asset they can use to obtain needed cash.
“Americans are more invested than ever in their homes but still tend to view homeownership as a source of debt rather than equity,” said MacKinnon. “These findings point to a broad lack of awareness of how to use home equity to unlock new opportunities without the burden of debt when their finances are already stretched.”
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The homeownership rate of millennials is 8% lower than it was for Gen Xers and Baby Boomers when they were the same age, according to a new report by the Urban Institute. So why are younger generations struggling to obtain a home at the same rate as their parents were?
In its Millennial Homeownership report, the Urban Institute states that there would be 3.4 million more homeowners if millennials had managed to keep pace with their earlier generations.
Obviously they haven’t, and so the Urban Institute tried to find out why. It’s confusing at first because millennials are the most educated generation in the history of the U.S., but that unfortunately means that many are being hampered by student debts that prevent them from saving for a down payment on a home. The Urban Institute said its own research has found that it only takes a 1% increase in a person’s student loan debt to decrease their chances of buying a home. But the average student debt of millennials now is $19,000, way above the average debt of $12,800 that Gen Xers had when they were the same age.
Millennials face other problems too. They’re renting their accommodation for longer than earlier generations did and they have to pay higher housing costs too. As such, some analysts have started using the term “rent burdended” to describe many millennials that are forced to spend more than 30% of their income on their housing.
Another factor that makes it less likely for millennials to buy a home is that they’re generally waiting longer than their parents did before getting married. The median age for marriage has shifted from the early-20s in 1960, to the late 20s today.
The Urban Institute does however say that the new remote work trend that took off because of COVID-19 could push more millennials to look at buying a home, in order to give themselves more living space. Working from home has led to a desire among many people for more personal space, and it also gives some the freedom to move to other parts of the country where housing might be cheaper.
“Older millennials will likely be trade-up buyers, while the larger, younger segment of the generation age into their key homebuying years,” realtor.com notes in its report.
Gen Z, the youngest generation, is also expected to emerge in larger numbers in 2021 and compete with millennials for a limited number of entry-level homes.