Homeless and Happy — for Now
Why throw money away on rent, when you can pay the same — or less — towards a mortgage and build equity? This paradigm is so deeply ingrained in our mindset, it’s seldom disputed. Yet, a recent survey shows that millennials aren’t as interested in buying homes as their generational predecessors.
Too young, perhaps? ‘Millennials’ are defined as those born between the early 1980s and the late 1990s. At its broadest, that definition would place individuals in this generation between the ages of 17 and 37, today. With the median home-buying age in the US being 31, it’s not that millennials are too young to buy homes, per se.
It stands to reason that those aged 29 and older (roughly a third of millennials) would take steps towards homeownership. Yet, the data doesn’t lie: first-timers now account for 32% of all homeowners, down from 40% in the mid-1980s. Moreover, after nearly three decades during which the average age of home-buying and average rental period remained virtually stagnant at 30 years and five years, respectively, nowadays millennials are renting one year longer and buying one year later.
What can explain this phenomenon, which appears to contradict history, common sense and sound planning expected from people in their late 20s and early 30s? Let’s start with the bad.
Difficulty securing loans: Millennials are saddled with two major debt burdens. The first is student loans 1200% greater than previous generations; the second, unfunded health and retirement programs benefitting today’s elders and shouldered by today’s youngsters. In light of this reality, many millennials’ credit scores fall short for the purpose of securing a home loan. Conversely, many millennials struggling to repay loans and maintain a favorable credit score may be weary to take on additional loans.
Post-recession disillusionment: Unlike home-buyers of the 1960s-1990s who saw huge spikes in real estate equity, millennials (and, to some extent, Generation X-ers) came of age in the wake of the most recent recession, dubbed ‘the mortgage crash’. They saw their parents, relatives, neighbors and communities struggle to keep their homes and their sanity. No less, they witnessed these same home values rise again in record time to pre-crash levels. Real estate is no longer the ‘safe bet’ it was pre-2008, so it’s understandable why millennials would be cautious about leveraging themselves in order to own.
Homeownership is down, period: Sure, millennials are buying less, renting more and {sigh} living with their parents longer. However, it’s worth noting that for over 10 consecutive years, US homeownership has been declining steadily, reaching 63.7% in 2015 — down from 69% in 2004.
Now, onto the good.
Dynamic career paths on the rise: Buying a home is often associated with ‘settling down’ since, essentially, it involves deciding where one’s center of life will be for the foreseeable future. Millennials don’t necessarily know — or want to know — where that is, which makes purchasing a home more difficult. An excellent opportunity so little as two cities away could necessitate a move, which is much easier to swing as a renter. Moreover, careers have become more fluid, with many companies nowadays footing the bill for relocating talent. In such cases, saying goodbye to friends, family and colleagues is hard enough without the stress of selling a home.
Priority shifts: Millennials express interest in owning a home; however, it is but one in a list of objectives, which does not precede other goals such as completing higher education, developing a fulfilling career, finding a life partner and starting a family. Once they check those off, sure enough, they’ll look into real estate.
Stress avoidance: With heightened competition and surmounting debt, millennials naturally work longer and juggle more tasks — leading many to choose to avoid the added stress of homeownership for simple, no-strings-attached renting, even at a premium.
Looking at all of these factors, one thing is clear: homeownership isn’t going anywhere. Owning a home is still at the heart of the American Dream, but that Dream has expanded to not only include more hopes and aspirations, but also new challenges to overcome. Who better to tackle them than the largest and most educated generation in American history?
Originally published at gochange.co on June 13, 2016.
Change develops an Invisible Service that links to bank and credit card accounts, analyzes money transactions and discovers bad financial behavior (symptoms). It then matches those symptoms with behavioral treatments that are executed through smart sms messages (nudges).
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