The millennial generation – generally defined as individuals born between the early 1980s and mid-1990s – has been accused of “ruining” a lot of things. Depending on who you ask, you might have heard that this cohort is killing marriage, department stores, dinner dates, sitcoms, paper napkins, and yes – the housing market.
Right now, there is an abundance of inventory in the current real estate market that simply isn’t selling. A Wall Street Journal article explains that baby boomers and retirees spent millions of dollars in the early 2000s building large, elaborate homes, so they could “live out their golden years in houses with all the bells and whistles.”
As these homeowners age, their spacious, multi-level dwellings are getting harder to maintain and live in. Unfortunately, they can’t downsize until they sell – and that’s getting harder and harder to do, with few young buyers interested in their properties.
Why aren’t millennials buying real estate?
It’s true that millennials aren’t purchasing real estate the way their parents and grandparents did. According to data from The Urban Institute, around 45% of baby boomers and Gen Xers were homeowners at age 25 to 34. That percentage is just 37% among millennials, many of whom currently fall into this age bracket.
So what changed for this generation? Why aren’t millennials buying homes? Are they too financially burdened by student debt to afford real estate? Are they just not interested in home ownership? Are they wasting all their money on avocado toast?
As with many major market shifts, the answer to this question is complex and multi-faceted. It’s hard to pinpoint a single determining factor that has dissuaded millennials from purchasing homes. However, there are a few contributing circumstances that make this trend unlikely to reverse any time soon:
Job availability and affordable housing rarely exist in the same market. The Atlantic reports that in desirable, affordable cities, there aren’t many good jobs available to fund a home purchase. Conversely, in major metropolitan areas where jobs are plentiful, housing units aren’t being built fast enough to keep up with the employment demand. The homes that are available in these areas are often unaffordable, based on early and mid-career millennials' salaries.
There’s a growing gap between median income and home value. A survey by real estate firm Unison found that, on average, it takes 14 years for Americans to save up for a 20% home down payment, if they’re saving 5% of their city’s gross median income each year. That figure was just nine years in 1975. The gap is even more pronounced in metro markets like Los Angeles, San Francisco, New York and Miami, where it would take more than 35 years to save up a 20% down payment.
Home buying conditions are less favorable now than they were decades ago. For younger would-be buyers who are looking to purchase modest, affordable homes, credit is harder to come by now than it was. Lenders are less inclined to issue smaller mortgage loans (below $70,000) because they don’t see as big of a profit, reports another Wall Street Journal article. Combine this with high student debt, rising property taxes, and restrictive zoning policies, and many millennials simply don’t see home ownership as a feasible option.
Beyond the economic aspects, millennials have another reason not to buy homes: They’ve embraced what Forbes describes as a “rentership society,” where they “can have it all but own none of it.”
This is not unique to real estate; with everything from vehicles to entertainment and even clothing, millennials are increasingly opting to pay for on-demand access and the freedom to change their minds, rather than commit to owning and maintaining something that will depreciate in value. To this generation, renting indefinitely often seems more convenient and financially practical than investing in a home they may want to move out of in a few years.
What will happen to the baby boomers' big, unsellable homes?
If a modern millennial does take the plunge into home ownership, they’re unlikely to go for the sprawling, multi-million dollar estates today’s baby boomers are trying to sell. Candace Taylor of The Wall Street Journal writes that buyers of all ages now “eschew … large, ornate houses” in secluded areas, in favor of smaller properties in walking distance of lifestyle essentials like restaurants, retail and nightlife.
Taylor notes that many of the baby boomers' big, expensive homes built before 2012 are selling for far less than the owners paid to build them, sometimes at a nearly 50% discount. These homes often sit on the market for a year or more, trapping the owners in properties they don’t want, and settling for selling prices at which they can’t make a profit.
If baby boomers hope to sell their homes, catering to millennials' taste for all things modern, minimalist and low-maintenance can be a good start. Real estate experts recommend upgrading what you can to ensure a new buyer will not be scared away by expensive renovations. The Spruce advises focusing on kitchen and bathroom remodels – particularly countertops, cabinets, fixtures and hardware – if you want the best chance of recouping your investment.
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