Millennials represent the primary segment of the contemporary workforce. Many of them are heading toward middle age and reaching the life milestones that come alongside it. One of the central aspects usually expected at this point is homeownership.
But this doesn’t really reflect the reality of Millennials’ lives and their interactions with the housing market. The world has altered significantly in the time this generation has come of age and graduated into the workforce. Much of this change has been turbulent on a financial and social level. As such, the milestones of previous generations are not necessarily appropriate or achievable today. The result being there isn’t the same engagement with the property market demonstrated by Baby Boomers and Gen Xers.
So, what is the future of Millennials’ relationship to the housing market likely to be? Let’s take a look at a few areas for consideration.
A Culture of Insecurity
The fact of the matter is, Millennials are not confident they can afford to buy homes. This isn’t just a current issue but one the generation feels is going to be a factor in the long-term. Several financial factors are impacting Millennials’ tendency to not engage with the housing market. This includes the high cost of housing, more student debt than any previous generation, and the tighter lending standards that often find them ineligible for mortgages. There is also the understandably frustrating aspect that, though their student debt makes them better qualified, they also earn less than their forebears. It’s no wonder they feel shut out from the market.
The problem isn’t just the simple fact of affordability, though. For most of their lives, Millennials have experienced a culture of instability — they have lived through two major recessions, serious social and political upheaval, not to mention a pandemic that decimated many people’s finances. Each of these had an impact on this generation’s sense of security.
All around them, Millennials have seen the potential for disruptive world events to result in unemployment and for mounting debt to end in home foreclosures by banks. The concept of homeownership doesn’t necessarily represent stability in the same way it once might have; rather it is another expensive debt that even at this point in their lives they don’t feel stable enough to take on. With the International Labor Organization reporting climate change is likely to lead to 80 million job losses by 2030, Millennials aren’t likely to feel much more stable any time soon.
A Continued Rental Market
Millennials’ primary relationship to the housing market has been as renters, and this is likely to continue. Indeed, renting is often considered one of the primary barriers to engaging with the market as buyers. Rents costs remain very high in most areas of the country, with the national median price rising by 11.4% in 2021 so far. This means, alongside their lower wages, Millennials are spending the majority of their income on rent with little to save back for a future mortgage down payment. This keeps them trapped in an indefinite rental cycle.
However, it’s also important to note there may be other elements that will keep Millennials renting for the foreseeable future. There are certain lifestyle-related benefits found in renting that are more in line with Millennials’ priorities. Multi-family rental properties are increasingly offering a variety of attractive amenities this generation may not have access to as homeowners. This includes open outdoor spaces, a close-knit community, and pet-friendly areas. Perhaps above all else, there is the presence of management to take care of the damage, property insurance, and pest control costs Millennials would otherwise be liable for if they were to buy their own property.
However, just because many of these rental properties provide what Millennials want in a home, this doesn’t mean the generation is entirely at the whim of landowners to charge whatever they’d like. The employment landscape is starting to change, making remote working a practical reality for more employees. This means Millennials are increasingly able to move away from the restrictions and costs of big cities to commuter towns and suburbs where they can pursue their careers while also taking advantage of lower rents. This is one of the few circumstances that could also see them being able to afford to buy in the future.
An End to the Boom
For the last couple of decades, the housing market has largely been in sellers’ favor. The same elements keeping Millennials shut out of the market have made it possible for property owners — particularly investment businesses — to make high profits on properties and take advantage of high demand. There have been some predictions this boom is likely to end in the next couple of years, but will this impact how Millennials interact with the market?
Unfortunately, it is unlikely to make it any easier for this generation to become first-time homeowners. Though house prices may start to go down a little, there is also the expectation of mortgage prices rising as interest rates start to go up over the next year or so. That said, this isn’t the primary issue that could continue to keep Millennials out of the housing market.
Lack of inventory remains a huge issue in the U.S. There are simply not enough homes to satisfy demand, which means until this aspect changes, it will likely remain a seller’s market. The obvious solution is, of course, to build more houses. While developers have sought to meet this challenge, there have been serious supply chain issues, particularly surrounding the supply of lumber. This has made housing materials more expensive, which in conjunction with fewer homes is likely to push property prices up further. Until the inventory shortage is adequately addressed, there is likely to be no practical way for Millennials to meaningfully engage with the housing market.
Conclusion
Millennials have been largely unable to achieve the homeownership milestones previous generations have enjoyed. Financial insecurity and a cyclical rental trap are both primary contributors to this. However, it is the prospect of a continued inventory shortage that is most likely to keep Millennials from achieving property ownership for the foreseeable future.
