Financial obstacles encountered by millennials
Older Millennials were navigating the early stages of their careers during the Financial Crisis of 2007–2008 and faced financial difficulties again in 2020 with the onset of the COVID-19 pandemic. The rapid series of financially challenging situations has hindered Millennials compared to their Baby Boomer and Gen X peers at similar ages.
As a result of these limitations, Millennials possess the largest proportion of outstanding student loans and the highest incidence of delinquent credit card payments. While homeownership is often regarded as a significant life achievement, it might not be attainable for everyone.
Housing experts estimate that incomes would need to rise by 55% to match the climbing housing prices. Millennials feel similarly: 47% strongly agree that wages have not kept up with the escalating housing expenses.
Despite mortgage rates dropping to 6.77%, the housing market continues to be sluggish. Freddie Mac reported a total home sales decline of 2.3% from April 2023 to May 2023 and a 4.9% decrease year-over-year from May 2023 to May 2024. Housing inventory is expected to stay low through 2024 but may improve in 2025 as mortgage rates fall below 6.5%.
Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, indicates that the sluggish housing market is a result of numerous factors that circle back to affordability. “The housing market remains in a holding pattern as it awaits improvements in affordability, even as the supply of new and existing homes for sale gradually increases.”
“The recent slight dip in mortgage rates, following reports of moderately slowing economic growth, hasn’t sufficiently alleviated the considerable affordability challenges facing potential homebuyers. Therefore, despite an increase in homes on the market, actual home sales have not surged.”
Younger potential homeowners show interest in the market, but concerns about affordability prevent them from fully engaging.
Two-thirds of Gen Zers express a desire to purchase a home, yet 40% are anxious about covering closing costs and down payments, while 48% worry about sustaining property tax responsibilities in the future.
61% of Millennials are keen on homeownership, which is slightly less than their Gen Z peers. Nevertheless, 40% are apprehensive about qualifying for a mortgage, and 58% are concerned regarding the upkeep and maintenance expenses associated with owning a home.
Alejandra Grindal, Chief Economist at Ned Davis Research, points out that Baby Boomers contribute to the housing scarcity by sustaining demand through prolonged inventory ownership.
“They represent the second-largest age group in the U.S., and they are increasing demand, partly due to their financial capability.”
“In comparison to previous generations,” she added, “[Baby boomers] intend to remain in their homes significantly longer. They resist moving to assisted living or nursing care. Their goal is to stay in their residences for as long as feasible. Additionally, many aspire to own second properties.”
With interest rates spiking to 8.3% in October 2023, numerous Millennials felt they were being excluded from the housing market, as they were less prepared to cope with the rising borrowing costs than older buyers.
The Bank of America Institute discovered that Escrow payments from Bank of America Consumer Accounts — an indicator of home buying activity — have decelerated for Millennials more than for older generations. Millennials accounted for just 28% of first-time homebuyers in October 2023, a decline from 35% in mid-2020, when consumers benefited from historically low mortgage rates.
Alternative approaches to homeownership
In light of the challenging market, some Millennials are exploring alternative homeownership strategies. Ten percent of Millennials have purchased a home with a friend, and seven percent have collaborated with family members for the acquisition.
37% of Millennials believe it’s a poor time to purchase a home, leading many to postpone homeownership for the foreseeable future. Many enter the housing market later than preceding generations, which might result in a housing bubble.
Chris Powell, Executive Director of the Business Research Center at the University of Indiana, and Sara Coers, a real estate instructor at the University of Indiana, anticipate that a generational housing bubble could be in process.
“The housing bubble is expected to emerge in 10–20 years, at the conclusion of the Baby Boomer era, when they finally decide to list their homes for sale.”
“Newly constructed housing to satisfy current strong demand may remain unoccupied in a decade. The reversal in demand will become more pronounced by the mid-2030s when the number of homes that seniors return to the market is predicted to surpass current levels by 40 percent.”
Dave Liniger, founder of real estate company RE/MAX, adds, “An entire generation has latent demand. We find ourselves in a captivating scenario of high demand coupled with insufficient inventory. When interest rates decline, we may enter yet another cycle of booms and busts.”
