Millennials started saving to buy a home in their 20s, a decade before most Boomers ever did. And many of them still can’t afford a down payment on a home.
More and more Millennials have given up on the “American Dream” and plan to rent through retirement.
The latest research from Charles Schwab, a financial services group, shows that while the majority of Boomers and Gen Xers are expected to own homes through retirement, only 48 percent of Millennials are predicted to do the same.
In 2018, 11 percent said they planned to rent forever. That jumped to 18 percent in 2020. The sad truth is that many Millennials just don’t feel like they can afford it.
Apartment Lists conducted its own research and found that 6 in 10 Millennials don’t have any money saved for a downpayment. And of the people who have bought a home, 25 percent were only able to do so with help from family
“Affordability remains the biggest roadblock for millennial renters,” wrote Apartment List research associate Rob Warnock. “Especially as home prices have risen throughout a pandemic that has been so damaging to low- and middle-class incomes.”
Debt.com’s chairman Howard Dvorkin, CPA discusses why so many Millennials have given up on homeownership and challenges in the U.S. housing market:
Click here for full video transcript
0:04so there’s been a trend in the housing
0:07market where a lot of Millennials and
0:10genz are kind of giving up their
0:12American dream of owning a house and
0:15feeling like it might be a little more
0:16financially responsible to even start
0:19renting what do you think about this
0:21crisis and what do you think about this
0:23movement well first of all you should
0:26never give up your dream that’s the
0:28first thing and you know what
0:31I will be the first person to say not
0:33everybody should own a house in this
0:35country but if you’re a working person
0:38and you have a spouse and you’re working
0:41and you’re working hard you should own a
0:43house um no question but you have to own
0:47a house that you can afford and
0:51unfortunately because of interest rates
0:53because of demand supply and demand
0:56housing in this country is problematic
0:59right now
1:01um the challenge is that people are
1:04hoping that the interest rates go down
1:06and all of a sudden they’ll make housing
1:08affordable I don’t buy it because as
1:11demand goes up for these houses the
1:14price will go
1:16up the problem you have is that wages
1:20have gone up and so has everything else
1:23in this country and inflation and and
1:27the cost of construction so that has
1:30caused a problem the other thing is
1:32supply and demand as I said earlier now
1:35the supply problem is there’s just not
1:38enough houses on the market and that’s
1:40caused by a couple things if you were
1:42lucky enough to get a 3% mortgage during
1:47the pandemic or low 4% you’re not coming
1:51out of that house anytime soon and the
1:54reason being is you can’t afford to move
1:58now in certain areas like where we are
2:00the average homeowner used to stay in
2:02the house and flip a house every four
2:04years yeah that’s not the case now
2:07they’re locked in they’re not giving up
2:09that low mortgage that being said um
2:13there are things that people can do uh
2:17you know save more put more into uh
2:20savings accounts and put more down on
2:24the house to lower the mortgage payment
2:26um the challenge that I see for young
2:30adults and believe it or not I have uh
2:32children that that are looking for
2:34houses and I hear it a lot that they
2:37can’t find a house well maybe they need
2:40to move to a little less expensive area
2:43I’m not saying move towns but maybe or
2:48counties or States maybe they need to
2:51move a little further out to get what
2:53they’re looking for and put up with the
2:55drive maybe not so much a a house on the
2:57beach but maybe a little more 15 in
3:00maybe so I think a house on the beach is
3:03pretty unattainable for a lot of folks I
3:04would agree I would agree but the other
3:07thing that’s being
3:09lost is the tax savings when you buy a
3:13house because you get part of that
3:16mortgage payment is being subsidized by
3:19the government because you do get uh
3:22some help with your real estate taxes
3:25and your uh the interest you’re paid Now
3:29Grant
3:30this uh recent tax law change reduced
3:33that overall amount however there’s
3:36still some savings that are viable and
3:38they’re there so it will reduce the
3:40amount you will spend on those um it’s a
3:44tough time to be a young adult right now
3:47cuz you got a lot of pressure and and
3:50you need to go through and figure out
3:54you know what you need and if you have
3:56to rent a little longer than you hoped
3:59then you rent a little longer
Can’t come up with a down payment
Though renting seems to be the new expectation, it isn’t the dream. Most Millennials want to be homeowners, it’s the price tag that’s stopping them.
Nearly 4 in 10 felt like their biggest barrier to homeownership was student loan debt, according to Legal & General – an international financial services company. Many of their survey respondents also advocated for national student loan forgiveness.
“The skyrocketing cost of college tuition at a crucial point in their lifetimes, along with other catastrophic economic events have indeed left many millennials financially crippled,” Legal & General’s report says.
With so much stress around debt, it’s hard for Millennials to save huge chunks of change. Especially with less income. Another popular complaint amongst survey respondents was the lack of a living wage.
The Massachusetts Institute of Technology defines a living wage for a family of four as $16.54 per hour, or $68,808 a year.
Wages have increased nationally but not as fast as inflation. The average income increased by about four percent in one year, which was one of the fastest increases in decades. But inflation rose seven percent. So even though wages might look better, they’ve still decreased significantly.
About half of all working Millennials in their “prime earning years” make less than $50,000. And half aren’t saving up to make a downpayment – most of them cite debt, underpaying jobs, or joblessness as the reason why.
“Stagnating wage growth and larger student loan debt have made homeownership out of reach for many people in my generation,” said one anonymous Legal & General survey respondent. “I would love to own a home, but I don’t realistically see how that would be possible where my husband and I currently live – and we work in tech and make decent salaries!”
Generational wealth and resentment
Research says Baby Boomers are downgrading and cutting out Millennials by leaving their larger homes and buying starter homes.
Before the Great Recession, first-time homebuyers made up half of all purchases. But now, they only make up 33 percent.
With multiple generations going after the same stock, the market is competitive. Legal & General’s findings say that Millennials blame the older generation for their problems with housing.
“Boomers need to stop buying starter homes as their retirement homes,” said one survey respondent. “It’s driving the cost up to where first-time homebuyers can’t afford it.”
Some Millennials have depended on their parents and grandparents for help buying a home. One of the perks of homeownership is the ability to create generational wealth. If younger adults keep getting priced out and forced into a lifetime of renting, how badly will that hurt new generations as they come?
Generational wealth could stagnate, locking new generations into renting like so many Millennials.
“The situation for millennials could be improved by creating more opportunity for ownership through increased affordable housing stock,” Legal & General concluded, “created using new technologies to build, for example, high-quality modular homes.”
