Over the past month, I have had the pleasure of working with Landed as a Coro Fellow. The fellowship has helped me realize how much I (an unapologetic millennial) did not know about homeownership and the homebuying process.
At this point, it has become well-observed that millennials are entering homeownership at a much slower rate than previous generations. What is behind this trend? And to what extent will this matter, especially down the line when millennials begin to think about retirement and confront the reality of what kind of wealth we have built? Below is a far-from-exhaustive overview of some of the current research about this housing trend.
The landscape of millennial homeownership
To have a common understanding of what is going on, let’s start with some of the facts about the landscape of homeownership amongst millennials.
Millennials are the largest, most educated and diverse generation in the United States. Yet we are around 8% less likely to be homeowners than Baby Boomers and Gen X-ers when they were a similar age (see table above from the Urban Institute).
While the shift to homeownership for millennials might be slower, we might be on the verge of seeing a massive aging into homeownership. According to a study by the Urban Institute, there are around 19 million millennials in the 31 largest Metropolitan Statistical Areas (MSA) that have the credit score and income to purchase a home. However, there are significant racial disparities in terms of homeownership access. Looking across these same 31 MSA’s, the Urban Institute found that “38 percent of white millennials are mortgage ready, compared with only 20 percent of black and 28 percent” of LatinX millennials.
What is behind this trend?
According to a survey conducted by Apartment List, 9 out of 10 millennial renters aspire to purchase a home, but only 4.4% have plans to do so in the next year. In this light, this trend is likely about more than a generational difference in values and aspirations. Here are just a few systemic and cultural factors that might be driving this generational gap:
- Higher wage jobs are concentrated in more expensive cities where the cost of living makes it more difficult to save money. These are the cities where young adults are more likely to be “rent burdened” (spend more than 30% of their income on rent). According to research by Lending Tree, while millennials have the highest average credit score in cities like San Jose, San Francisco, and New York, they are also pursuing homeownership later than in any of the other 47 largest MSAs. On the flipside, Salt Lake City, Pittsburgh, and Minneapolis are the cities where young adults are most likely to be pursuing homeownership.
- More millennials attending college and spiking tuition costs means that millennials are the generation most saddled by student loan debt. Since 1980, the cost of a college education has grown at a far faster clip than income. Some estimates calculate student debt today to be as high as $1.4 trillion. Sarah Holder writes in City Lab: “In 2015, students who took out student loans graduated with 70 percent more debt than those just 10 years earlier, racking up an average of $34,000 that some are fated to pay off for decades.” And the cruel irony is that skipping higher education just makes it even more challenging to save up for a down payment.
- There are widespread misperceptions about saving for a down payment. This is the perspective of the Urban Institute, which published a comprehensive policy research report on Millennial Homeownership. Based on a survey of renters, nearly 40% of respondents believed that you need more than 20% saved for a down payment. Frankly, if you were to survey me a couple of months ago, I probably would have fallen into that 40% category. In fact, the median down payment in the U.S. in 2018 was 5% (closer to 10% in more expensive states, such as California). And across the country, there are around 2,500 active programs at local and state levels that offer down payment assistance (Landed's down payment program is one option available specifically to educators). The Urban Institute reports that as a result of myths around down payments, many mortgage-ready potential homebuyers, especially millennials, might not even take the initial steps to explore the option. And these millennial misperceptions about homeownership might be compounded by growing up during the fallout of the Great Recession.
- Millennials are delaying a number of significant life changes that are frequently correlated with homeownership. One such trend is delayed “household formation,” or in plain speak, moving out of your childhood home. In California, two out of every five Californians between 18 - 35 years old lives at home with a parent (up from around 20% in 1980). In New Jersey, 47% of millennials live at home. Millennials are also more likely to delay marriage and childbearing, life changes that are frequently correlated with homeownership. According to the Millennial Homeownership report, the marriage rate amongst young adults has fallen 13.8%, from 52.3% to 38.5% between 1990 and 2015. If marriage rates today were the same as in 1990, the study projects that homeownership would be five percentage points higher.
Sad but true memes
This wouldn’t be a true blog post about millennials, written by a millennial, without including a couple of memes that epitomize this trend:
- Monopoly for Millennials actually exists and its slogan is: “Forget real estate, you can’t afford it anyway.”
- #plantsofinstagram - The Economist published a cheeky article on the emerging trend amongst millennials to replace homeownership with plants – a cheaper alternative to fulfill a “form of domesticity.” This popularity is reflected not only in the growth of plant sales, but in internet search data as well. Since 2010, Google searches for plant life (such as “succulents”) has skyrocketed tenfold.
Prior to my fellowship at Landed, my focus had been on affordable housing policy in the Bay Area, primarily around expanding and preserving affordable housing to prevent the displacement of low-income communities. Working with the Landed team has broadened my thinking about the scope of housing issues to also consider access to homeownership and financial security for middle-income residents, including the educators and school employees Landed serves.
This experience has served as a reminder that effective and thoughtful housing policy should not be a one-size-fits-all approach. We will always need a diversity of options to best meet the housing needs of different individuals, communities, and maybe even generations.
Interested in learning more about homeownership? We provide free resources about the journey to buying a home.
