Tips & advice on getting your finances back on track.
After the turbulence of 2020, many millennials, currently aged 26-40, doubt they’ll ever be able to purchase a home. Many lost their jobs, still have debts to pay, and are uncertain of what their near future will look like. According to Apartment List, 18% of millennials expect to rent forever and only 47.9% of millennials currently own a home. The millennial generation has the lowest homeownership rate of any other generation. In fact, the millennial homeownership rate is around 8% lower than it was for Gen X-ers and baby boomers when they were the same age. Even before the pandemic, many millennials had no plans of ever becoming homeowners. This begs the question; why are millennials not entering into homeownership?
Read More: Are You Ready To Purchase A Home?
Student loan debt
Millennials are the most educated generation in American History. In turn, this means that many are still carrying the burden of student loan debt. According to Experian, the average millennial consumer has about $27,251 in debt. For most, this debt consists of student loans. Student loan debt hit almost $1.6 trillion in the U.S. at the beginning of 2020. This is a burden on millennials trying to enter the housing market, and is delaying their ability to buy a home.
The average monthly student loan payment in the US is $393. This monthly payment, on top of all other monthly bills and expenses, is making it harder for millennials to save for a down payment on a house. Millennials have so much debt that they aren’t prioritizing regular savings let alone savings for a down payment. Student loan debt is a huge factor as to why millennials are not buying houses and student loan debt in the US is growing. Generation Z is soon to overtake millennials in student loan debt. This will make it even harder for generation Z to buy homes than millennials.
Read More: Taking Control Of Your Student Loans
Starting Life Later
Big life events, such as getting married or having children, often trigger buying a home. The majority of millennials aren’t currently married. According to the Pew Research Center, it’s projected that 25% of millennials will never get married. The ones who do plan on getting married don’t do so until much later in life. Many millennials are pursuing higher levels of education and are focused on being stable in their careers before pursuing marriage. With marriage on the backburner, homeownership amongst millennials is declining.
Read More: Personal Finance For Millennials 101
Since many millennials are starting their lives later, more are living with their parents or relatives much longer than any other previous generation. As of July 2020, 52% of millennials were living in their parents’ home. The pandemic saw many millennials moving back in with their parents, but this trend was on the rise well before the pandemic. Starting life later also has a lot to do with the debt millennials have, as discussed earlier. The only place a lot of younger millennials can afford to live is their parent’s homes. There’s less shame in millennials living at home with their parents when many of their friends are also in similar situations. Being comfortable at home and starting life later prolongs the home buying process for millennials even more.
Lack of commitment
With marriage on the decline amongst millennials, lack of commitment in other ways is also delaying the home buying process. Millennials are choosing to rent for longer in locations that tend to be more expensive. Many millennials are moving to big cities for the social aspect or the lure of greater work opportunities. Renting is also a commitment free investment. Most leases are only a year or two long, some can be even shorter or a month-to-month lease. Having a shorter commitment is less daunting than a 30 year mortgage.
Millennials love the idea of being able to pick up and go when their lease is up. Young people are working for the same company for a fewer number of years than their parents did. Having a lease as opposed to a mortgage makes it possible to accept a dream job that could be in a different state. Millennials also value experiences as opposed to physical items. Renting rather than owning makes it easier to travel more often. When you rent, you don’t have the same home expenses or upkeep as you do when you own. Renting rather than buying is the commitment level that most millennials are looking for.
Over the last year, things have started to look up for millennials and homeownership. The last year has pushed 3 in 10 millennials into house hunting because of record-low mortgage interest rates. In 2020, millennials share of homeownership grew to 54%, thanks to both natural growth and the pandemic’s impact.
The pandemic has also brought about changes to millennials’ normal day-to-day routines. Many companies have allowed the flexibility of working remotely, and this trend is likely to continue post-pandemic. This means many millennials can cut out their long commutes or having to physically work in a big city. Since they aren’t physically working in cities anymore, millennials feel less of a need to rent a small apartment and feel they can make the leap into homeownership in the suburbs now more than ever. For millennial renters who had to commute to an office, they’re now saving money by working from home. This money they’re saving can now be put toward their down payment saving on a new home.
Listen to our Podcast:
In the past year millennials are feeling less bleak about the idea of becoming a homeowner. However, there are still those who are waiting to have the financials means, or get married before they commit to homeownership. It seems that the trend for millennials will be to become homeowners at a later age than their parents did and it’s likely that the next generation, Generation Z, will become homeowners even later than millennials.
If you’re a millennial thinking about purchasing your first home, look into pre-purchase housing counseling. By reaching out to a housing counselor, you’ll be able to get some great information and counseling on buying your first home. You can contact a certified housing counselor at Navicore Solutions here or 1-800-282-4557.
Katherine Fatta is the Social Media Coordinator at Navicore Solutions. She creates fun and informative social media posts that engage the public.