As the largest generation in U.S. history, millennials are becoming an increasingly vital group in the real estate market. But as they come into their prime house-buying years, there are important factors keeping millennials away from purchasing homes.
Income levels are low. Millennials are behind the eight ball in income and wealth accumulation compared to home prices, making it harder for them to catch up due to a continuous rise in home costs. Research shows it takes five to 10 years to get back on the wealth accumulation path. And although house prices have increased in the last couple of years at six percent a year, wages have remained stagnant at an increase of only two to three percent per year. The low income of a millennial may not be a problem when staying in mom's basement but can be an issue against the thousands of dollars needed to buy and keep a home.
A sluggish job market. Millennials who graduated from college entered into a poor job market. They're stuck at jobs with low wages, simple skill levels, and little future progression. Many millennials don't even work or have full-time jobs, and the ones that do are in positions that don't relate to their degrees. With good jobs in short supply, home ownership gets put off and many return to school or their parents' homes.
College debt. Younger adults graduated from college with a load of student debts. This high amount of debt means millennials have less money and need to save for a longer period of time to have a down payment, therefore delaying homeownership. A millennial with student debt can take up to 10 years to save for a down payment on a house, compared to half the amount of time without debt. Not only does a large student debt interfere with the ability to save but also to qualify for a home loan.
Costs of new homes. Housing is getting more expensive and becoming unaffordable for many younger Americans. Material for newly-constructed homes and the problem with land availability are driving up costs, causing homebuilders to build bigger and fancier homes that only the rich can afford. So when homebuilders are presented with a choice to put up 10 starter homes or 20 larger homes on a piece of land, they will commonly go with the larger properties. Overall fewer homes are being built; new homes account for about 1.1 million units a year but we should be at 1.5 to 1.6 million. The starter homes are no longer economical. The old $150,000 or $200,000 starter home certainly is not around anymore in a metropolitan area like D.C. but moreover not in Wichita, Kansas either.
Location. Young people once came to cities in droves to live but today, particularly the older millennials are moving to the suburbs. This sounds like good news however, they are moving to the suburbs at a much slower rate than their parents did. Another concern is younger millennials still desire the cool, vibrant, and hip lifestyle that cities offer and settle there before having kids later in life and moving to the suburbs. Despite whether millennials live in the city or suburbs, once they begin to finally rebuild their wealth it still may not be enough to offset the cost of living in the top cities in the country.