Many reports label millennials lazy, suggesting that they are averse to working and lack the motivation to pursue the American Dream. Unbeknownst to many, over the last 50 years, the United States economy has undergone a major shift that is deeply impacting the ability of millennials to achieve the so-called American Dream, reducing their chances of owning a home.
A recent study completed in October by Bank of America found that 72% of millennials, which they identified as individuals born between 1978 and 1995, have listed being a homeowner as a “top-priority” in their lives. With such high number, why aren’t millennials purchasing more homes?
The Impact of Student Debt
Most millennials were pushed to enroll in college following high school, which generated enormous debt for student’s post-graduation; understandably, when you already have $50,000 or more of looming debt, taking on a mortgage is frightening.
The Belief that We Are Approaching Another Recession
Many analysts are forecasting that by 2020, the United States will be hit with another recession. Most argue that it will not be as severe as that of 2007; however, as millennials were witnesses to the economic impacts that the 2007 downfall had on the population, they are wary of purchasing a home at this time. The fear is that they will lose the home not long after the purchase. And although interest rates have been moderately low, few have acted.
Low Pay and High Cost of Living
If you take a closer look at many postings for job openings, you will see employers hiring people at $10 – $15 per hour and requiring a college education; many master level positions are paying below $20 as well. Compared to the cost of living in most major areas, including the Houston area, this pay rate does not enable someone to purchase a home. The average rent is 30% of the renter’s income – but those who earn near minimum wage end up paying nearly 50% of their income toward rent! This high cost of living makes it challenging for individuals to save the money for a down payment on a new home.
Lifestyle Changes
We can also gain some insight by shifting lenses and looking at the social aspects of millennials’ lives. There is a noticeable difference in their values and life trajectory compared to those of baby boomers. First off, they are marrying later in life. While twenty years ago, it was common for someone to marry in their early 20’s, it is now more common for couples to marry in their early 30’s. One major contributing factor is the transition from skilled jobs to professional careers, which demand years to develop rapport and professionalism. No longer are people satisfied at entry level positions; rather, there is a higher percentage of men and women committed to building their career prior to getting married.
Another lifestyle change that is impacting the pattern in which home buying occurs is that millennials are less interested in material items and more interested in spending their income on experiences. With this mindset, they are struggling to save the capital for a down payment.
Lastly, there is also the trend towards digital nomads. This professional decision to build a company online, or work as an online freelancer, is reducing the number of people dedicated to purchasing a home. Instead they are utilizing their income to fund a nomadic lifestyle built around working abroad. There are even companies devoted to organizing digital nomad groups, which meet for anywhere from one a week to one year, providing people with the essentials they need to comfortably work and live abroad.
High Home Prices
The real estate market has been a seller’s market for some time now. This means that homes are selling at higher prices, inventory is low, and competition is tough. Additionally, due to the increased price of homes, those who already own homes have been hesitant to sell. Although interest rates have seen a decline over the last few years, the increase in home values has made it challenging for millennials to transition to their own home.
Looking at The Future
There is no simple answer to the question of why millennials are not purchasing homes. There are both economic and social influences that have had a major impact on the shift in home buyers in the United States. If the economy can push through the expected recession and provide millennials with more confidence in their future with buying a home, we may anticipate an increase in home buyers. If you are in the market to sell or buy a home, contact us today!