Millennials Have Much Smaller Share In US Housing Market Compared To Older Generations
21 Jan 2020
Approx Reading time: 3 minutes
- Millennials are expected to own a much smaller fraction of the housing market in the US by the time they reach the age of 35, compared to older generations.
- Limited incomes, expensive houses, and mounting debt have all been mentioned as possible constraints that have limited house buying potential of the millennial generation.
The financial circumstances of young families in the US have changed dramatically compared to those experienced by earlier generations. A major chunk of the regular income is being used to pay for necessary expenses, including crippling debt, leaving little room for savings that can contribute to actual wealth expansion.
According to data provided by the Federal Reserve, in the year 1990, around 33% of all real estate (in value) was owned by the baby boomer generation, at a median age of 35 years old. Comparatively, the millennial generation right now, with 31 years of median age, has ownership of only 4% of the total real estate market (in value).
This data is alarming, considering millennials only have four years to bridge the gap by investing in the purchase of houses. According to experts, the millennial generation might not be able to improve homeownership proportion beyond even 20%, which is the ownership benchmark set by Generation X when they crossed 35 years of age.
Owning a home is considered one of the most crucial aspects of wealth for middle-class families, as it offers a stable asset that continues to increase in value over time. According to experts, lower proportions of homeownership shows that millennials would collectively have a lower lifetime wealth compared to previous generations, and this could have negative consequences on the economy as well.
There are a couple of challenges that millennials in America are currently facing that are preventing them from owning a home. The first issue is simple: low incomes and expensive homes. Homebuilders and developers are making expensive luxury condos that are beyond the reach of the middle class, and due to regulations governing land use as well as zoning, many millennials are unable to find an affordable home.
The second issue pertains to the monumental debt that millennials currently have, which prevents any savings from accruing over time. This means many millennials don’t have enough money saved to make a downpayment on a house. Outstanding debt for those under the age of 35, who is also the head of their household, was around $21,000 back in 1989. This figure increased to $39,000 in the year 2016. During this same time period, student loan debt increased dramatically for these households to 45% (it was 17% in 1989).
According to experts, the housing market may soon need more buyers, considering the fact that $13.5 trillion worth of housing real estate would be coming back on the market in the following years due to aging out of the baby boomer generation from homeownership. However, since millennials and even Generation X individuals are cash-crunched, demand for houses may not meet this abundance of supply. But, many millennials would be receiving these houses as part of their inheritance, which is expected to increase millennial homeownership figures.
The most interesting statistic, however, is that millennial housing wealth has been on a consistent decline since 2016, whereby the housing wealth held by baby boomers and Generation X has increased by around 5% during this time. Experts believe this could be due to a faster appreciation of properties owned by the older generations compared to those owned by millennials, however, more clarity is expected to come with time.