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Millennial Homebuyers Arent Keeping Up With Older Generations Heres Why

Although the make up the largest share of the market, millennial homebuyers are struggling to keep up with previous generations.

June 22, 2021
June 22, 2021
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Millennials make up the largest share of homebuyers -- 37% -- and they have since at least since 2014. Given that they’re now the largest generation and just entering prime homebuying age, their presence in the market is unlikely to change anytime soon.

But the homeownership rate for this massive population segment is lagging behind those of previous generations. According to Apartment List’s 2021 Millennial Homeownership Report, just 42% of 30-year-old millennials own homes, significantly lower than 48% of Gen Xers and 51% of baby boomers at that age.

So what’s keeping millennials from achieving the goal of homeownership? It’s hard to pick out just one or two reasons, because there are a number of hurdles for this generation to overcome.

Higher student loan debt and lower wages

According to the 2021 NAR Buyer and Seller Generational Trends report, millennials are the most educated group of homebuyers, with more than 85% holding an associate’s degree or higher.

But this education comes with the cost of student loan debt. Thirty-seven percent of older millennial homebuyers (ages 31-39) and 43% of younger millennial homebuyers (ages 22-30) reported having student debt, with the median loan balance above $25,000.

Those who had debt delayed saving for a down payment for a median of three years.

Despite being more educated than previous generations, millennials are making 20 percent less than their parents. The federal minimum wage hasn’t budged from $7.25 in 10 years and is lower than the cost of living in most cities.

Racial wealth inequality

As a whole, millennials trail previous generations in homeownership. But this shortfall is not spread evenly among racial groups.

According to Apartment List, White millennials have the highest homeownership rate and are only slightly lagging behind their Gen X and baby boomer counterparts. Meanwhile, Asian and Hispanic millennials are outperforming previous generations at some age levels and lagging at others.

For example, 25-year old Asian millennials have a higher homeownership rate than Gen Xers and baby boomers did at that age. However, 38-year-old Asian millennials are lagging behind baby boomers by 5% and Gen Xers by 10%.

Asian Americans have the second-highest homeownership rate overall, so for millennials to keep pace with previous generations is a promising sign. There are two prevailing theories for their success:

  1. Family cooperation and a “new immigrant attitude” drives Asian Americans to help each other achieve the goal of homeownership.
  2. Homeownership is calculated at a household level and many Asian Americans live in multigenerational homes. This may skew the stats to reflect a higher rate of homeownership.

The greatest disparity is in Black millennial homeownership rates. Black homeownership is the lowest among racial groups across the board, but Black millennials of every age are behind both their baby boomer and Gen X counterparts.

This becomes more noticeable when comparing the homeownership rates of White and Black millennials. By age 25, more than 30% of White millennials own a home, while less than 10% of Black millennials do.

For 30-year-olds, the Black-White homeownership gap is more than 30%. And for 39-year-olds -- the oldest millennials -- homeownership rates are above 70% for White Americans and just 35% for Black Americans.

What’s driving the Black-White homeownership gap?

Juneteenth is a reminder that White Americans got a 300-year head start in creating wealth through homeownership.

Race-based housing discrimination was legal in the U.S. until 1968. But even after the Fair Housing Act of 1968 was passed, discriminatory practices like red-lining kept many Black Americans from building and passing down wealth through homeownership.

Black Americans are also disproportionately affected by crises like the Great Recession and the COVID-19 pandemic. During the pandemic, this group experienced higher rates of COVID-19 infection and job loss. Now, they are regaining jobs at a slower rate.

Impacts of COVID-19: High prices and low savings

While the pandemic provided many homebuyers with an opportunity to buy a home with historically low interest rates, the booming demand also drove a steep rise in home prices. Coupled with income loss due to the pandemic’s economic effects, skyrocketing prices put homebuying out of reach for some millennials.

According to Apartment List, 80% of millennial renters plan to buy a home, but 63% have nothing saved for a downpayment. Just 15% have $10,000 or more saved for a downpayment.

In 2020, 18.2% of millennial renters said they “expect to always rent”  -- up from 10.7% in 2018. Of this group, 74% said they plan on renting forever because they cannot afford to buy a home.

Of millennials trying to save up for a down payment, just 20% said they can count on assistance from family, while the remaining 80% are going it alone.

Is help on the way for millennial homebuyers?

For a host of reasons, millennials are finding it harder to buy a home than previous generations. Saving for a down payment is the largest barrier in many instances.

There are two major pieces of legislation in the works that could give millennials -- especially first-time homebuyers -- the assistance they need.

First, there’s the Down Payment Toward Equity Act of 2021, which seeks to assist homebuyers — especially disadvantaged ones — to start building wealth through homeownership. Although still working its way through Congress, it seeks to give $20,000 in down payment assistance to first-time, first-generation homebuyers, and an additional $5,000 for “socially and economically disadvantaged individuals.”

Then there’s the First-Time Homebuyer Act of 2021. Still in its early stages, the legislation seeks to provide a $15,000 tax credit to eligible first-time homebuyers. While it’s less assistance than the $25,000 in down payment assistance, it would be available to a broader category of new homeowners.

Looking ahead

Millennials are the largest generation, with a population of around 72.1 million, and many are now entering prime homebuying age. This group’s ability to build and pass down wealth through homeownership will impact the U.S. economy for generations to come, as owning a home is highly correlated with wealth and financial stability in this country.

So far, the road has been tougher for millennials than previous generations. But the proposed legislation from the Biden administration, along with a growing recognition that home affordability is a critical issue affecting future wealth creation, could mean that better homebuying conditions are on the horizon.

Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.

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