Over the past few years there has been a lot of buzz over the spending habits of Generation Y, commonly referred to as Millennials. American marketeers are baffled by the low levels of spending among this cohort, particularly when it comes to their reluctance to purchase homes. Americans aged 18-33 prefer to rent, with a mere 13% of Millennials owning property.
The reasons for the shift toward renting among young Americans are well-documented. As housing prices steadily rise and interest rates remain low, should Millennials reconsider their decision to stay out of the housing market?
Millennials carry high student loan debt
There is a long list of reasons why Millennials have been slower to home ownership than preceding generations. High student loan debt is a commonly cited culprit. Two-thirds of Millennials with Bachelor degrees carry student loan debt, with an average debt burden of $27,000. Millennials carry an average credit card balance of $3400, mirroring the trend set by older Americans. Obtaining a mortgage is the largest debt most consumers will ever take on at once, and millennials are thinking twice about adding to their already substantial debt loads. Though their non-mortgage debts are high, the Millennial attitude towards saving more closely mirrors the habits of their grandparents than their parents. Millennials who are employed are smart about prioritizing debt repayment and prefer to save their money rather than invest.
Unemployment hits young people hardest
Higher rates of unemployment and underemployment for this generation leaves many Millennials without enough income to pay down debt, qualify for a mortgage, or to even live independently from family or roommates. During the last few years of slow economic recovery, the unemployment rate has remained highest for workers aged 25-32.
During the age where past generations were purchasing their first homes, Millennials are saddled with an unemployment rate that rose to 15.2% at its highest, and consistently remains at 8.2%. Because of the high unemployment rate, 36% of young Americans have foregone living alone or with roommates, in favor of sharing a home with parents and grandparents. One in four Millennials live in multi-generational households, almost double the rate from 1980.
Millennials DO aspire to home ownership…someday
Just as a combination of economic factors came together to put millennials off from home-ownership, it may take the perfect storm of economic developments to convince them to invest in property. According to the Harvard Joint Center for Housing Studies, 30% of older millennials (aged 25-33) living and working in the nation’s largest metropolitan areas can afford the costs of home-ownership, yet are choosing not to buy. Most Millennials recognize that we are in a period of economic restructuring, and expect to change careers and jobs more frequently that past generations. This anticipation of greater labor mobility leaves many Millennials unsure of where they will live in the future, and reduces their willingness to commit to home-ownership in one city.
Despite the factors that have kept young Americans out of the housing market, 9 out of 10 Millennials say they would like to own a home someday, which begs the question, when?