Millennials are easily misunderstood. Why do 1/3 of millennials still live with their parents? Why aren’t they buying homes? Baby Boomers can recall the days when they saved up a few years after graduating and purchased a home. Simply put, it is not as easy as it used to be to buy a home. Millennials are sometimes choosing to wait, yet oftentimes are forced to wait. Curious as to what is holding them back? There are five major reasons why millennials aren’t buying homes.
1. Home Prices. Home prices have shot up relative to growth in income. If in the past 30 years median income has grown about 10% and home prices have grown 60%, what is considered affordable housing? Reference this chart from Fred® Economic Data, which shows the staggering increase gap over the past 10 years between median income and property prices.
2. Student Loans. The cost of college and student loan debt has grown substantially. In just the past 10 years, the national student loan balance has increased from roughly $500 billion to $1.3 trillion. Millennials were raised with the idea that a college education is necessary to get a well-paying job. A degree, however, comes at a price. Rather than saving for a down payment on a home, millennials instead are faced with paying thousands of dollars every year towards student loans. This trend appears to be increasing exponentially with no signs of slowing down, as shown by Fred® Economic Data.
3. Job Transitions. According to CNN, millennials will change jobs an average of 4 times in their first decade of work after college. To put this into perspective: this is double the amount of times Gen Xers switched workplaces within the same timeframe. Rather than settling down with just any job, millennials are more willing to take on risk in order to find the right career path. Different jobs in various locations make millennials hesitant or unwilling to invest in a permanent residence, and less consistent income makes qualifying for a home loan a lot harder.
4. Marriage. In 1960, the average age of marriage for men was 23 and the average age for women was 20. Today? The average age of marriage for men is 29 and women 27 (PEW Research). On top of that, Pew Research estimates that 25% of millennials will never get married. With only one source of income, and less motivation to settle down, it makes sense that millennials are getting less excited about buying homes.
5. Stricter Lending Standards. These days, it is way harder to get a loan. Your FICO score helps lendors measure your credit risk so they can determine whether or not to loan you money (the higher the score, the better). Between 1999 and 2007, just 40% of loans were closed with FICO scores of 750 or higher. Today, 70% of loans were closed with FICO scores 750 or higher (NerdWallet), which is considered “above average” Since milliennials are younger, their credit history is shorter, and oftentimes debts are weighing them down. A shorter credit history and large debts likely mean lower FICO scores, making getting approved for a home loan more of a challenge.
It was just a few years ago that many Americans had to walk away from their homes because their house might not have been worth the inflated prices they paid. Millennials don’t need to fuel another bubble. So where does this leave them? By saving consistently, building up credit, growing their money and maybe a little help from mom and dad, millennials will be able to afford homes. It may just take a little longer. There’s nothing wrong with this, especially since millennials are showing that they are not even excited about tying themselves down to a home anyways. They’ve got other goals they want to achieve first.
By Ben Dubar
Investment Advisor Representative
Fred® Economic Data
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.
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