Millennials own fewer homes as compared to previous generations. What are the reasons for their low homeownership rate? What does the future hold for millennial homeownership?
Millennial homeownership is lower than previous generations
The homeownership rate is defined as the number of household heads who are homeowners, divided by total household heads (homeowners + renters).
In 2020, Millennials and Gen Zs (age < 45) had an estimated homeownership rate of only 46%. In 1990, Boomers and Gen Xers belonged to the same age group (< 45) – their homeownership rate was much higher, at 53%.
This gap is likely to persist into the future.
What are the reasons for the low millennial homeownership?
1. Fewer millennials are getting married
Married folks are far more likely to be homeowners. In 2015, the homeownership gap between married and unmarried homeowners was a staggering 35 percentage points.
2. Increasing racial diversity in millennials
Millennials are far more racially diverse than previous generational cohorts. 40% of millennials belong to racial and ethnic minorities.
However, because to structural factors (redlining during the New Deal Era, lack of intergenerational wealth, etc.), minority homeownership has always been lower than their White counterparts.
This homeownership gap continues to this day.
3. Increasing student loan debt
4. Decreasing access to credit
Poor lending practices by banks in the early 2000s led to a wave of defaults and foreclosures during the Great Financial Crisis. Banks and other lending institutions seem to have learnt their lesson. Credit availability in 2021 is very low.
While stringent underwriting practices reduces the risk of defaults, it also makes it more difficult for millennials to purchase their first home.
5. Millennials are getting increasingly rent burdened
Millennials are far more likely to be rent-burdened (spend more than 30% of their income on rent) than previous generations.
Reasons for optimism
Researchers at Urban Institute predict that Millennials and Gen Zs will increase their homeownership rate from 46% in 2020 to 64% in 2040.
Thus, young generations will drive demand for homes over the next 2 decades. They will boost homeownership and home prices in the process.
Home.LLC aims to help millennials purchase their dream home. Head over to our website if you need assistance reaching 20% down.
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