How Overpriced Housing Markets Are Impacting Millennials
When it comes to home ownership, things are not equal across the generations.
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According to Andrew A. Lokenauth, financial and real estate expert and the owner of Be Fluent in Finance, Millennial home ownership lags behind previous generations. Only 43% of millennials own homes currently, compared to 66% of Gen X and 67% of Baby Boomers when they were at similar ages as Millennials are now.
Overpriced housing markets have also contributed to challenges purchasing homes. With housing markets reaching overpriced status, will Millennials be able to experience the same level of home ownership as older generations? And how will this impact their retirement and overall finances? Experts weigh in.
Millennials Have More Obstacles
The sad fact is that “Millennials will not have the same level of home ownership as previous generations,” said Brett Johnson, a real estate investor, licensed real estate agent and owner of Cash For House Pro.
He said that several factors are poised to hinder home ownership among millennials.
“The substantial burden of student loan debt and slow wage growth presents a significant obstacle for this generation in saving for a down payment,” Johnson added. “Rising housing costs and strict mortgage regulations add to these challenges. The gig economy introduces another layer of complexity, leading to delays in major life milestones like marriage and starting a family.”
Without home ownership, opportunities for building wealth through property appreciation are lost, impacting financial security in retirement.
“Student loan burdens and home ownership obstacles may reduce contributions to their retirement savings.”
The Changing Landscape
Real estate is also in a state of dramatic change, according to real estate investor, Marisa Simonetti of Simonetti Real Estate.
“With Blackstone and other institutional investors wielding substantial influence in the real estate arena, it’s undeniable that the landscape of home ownership for the average person is undergoing a seismic shift.”
She reminisced about “good old days when local investors like me could confidently scout out a property without the looming presence of Wall Street giants in every deal.”
This level of competition can be extremely difficult for Millennials to compete with.
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Limited Opportunities
“As the dream of traditional home ownership becomes increasingly elusive for many due to rising property prices fueled by institutional buying, individuals may find themselves with limited opportunities to build home equity–a crucial source of retirement security for previous generations,” said Simonetti.
Millennials will need to prioritize alternative investment strategies and financial planning, she continued, and explore new avenues to secure their financial futures in a landscape where traditional home ownership may no longer be a guarantee.
The Impact on Retirement
Simonetti shared that early in her career, she was able to buy a charming fixer-upper, flip it, and turn a sweet profit.
“That profit was my golden ticket to a comfortable retirement — a dream that might be out of reach for many millennials. Without access to affordable housing, their retirement plans could be in jeopardy.”
Aleks Grigoriev, a real estate expert and co-founder of Priority Home Buyers, added that the impact of unaffordable housing extends beyond just home ownership.
For millennials, the dream of home ownership is often intricately linked to their retirement planning. Owning a home has historically been a cornerstone of retirement security, as it provides an asset that can appreciate over time and potentially serve as a source of income through downsizing or renting.
If millennials are unable to access the housing market, they may have to divert more of their income towards renting, which can be less financially advantageous in the long run compared to building equity through home ownership. This could hinder their ability to accumulate wealth, potentially leading to a more financially precarious retirement.
Soaring Interest Rates
The recent interest rate frenzy is not helping Millennials, either, Simonetti said.
“Rates are shooting through the roof faster than a SpaceX rocket. Higher interest rates make borrowing more expensive, which can be a nightmare for those trying to enter the housing market. It means larger monthly mortgage payments, making home ownership even further from reach.”
She explained that interest rates today starkly contrast with their pre-COVID 19 levels. Before the pandemic, rates were relatively higher, with 30-year fixed mortgage rates in the United States hovering around 3.5% to 4%. As of September 2021, 30-year fixed mortgage rates had fallen to around 2.8% to 3%, and even lower rates were available for qualified borrowers.
As of today, rates are currently around 8%, representing a significant increase from previous levels which has substantial implications for borrowing costs and the overall economy, she said.
“Such a rate hike would is likely a sign that the market has taken another hit, potentially impacting various sectors of the economy, including real estate and consumer spending.”
Steeper Housing Costs
Millennials are now at the age when they would typically be expected to own houses instead of renting. The combination of rising real estate prices, stagnant wages and limited access to affordable housing options has made it increasingly challenging for younger generations to enter the housing market, according to Peter Evering, business development manager for Utopia Property Management.
“The cost of housing has surged significantly over the years, placing millennials at a disadvantage. In contrast, baby boomers entered the housing market when prices were more affordable, and their properties appreciated over time. Millennials often find themselves in markets where home prices have skyrocketed, making it increasingly challenging to purchase a home.”
On top of that, he pointed out that income growth for millennials has been sluggish compared to the rising cost of living.
Evering said, “Stagnant wages, coupled with the burden of student loan debt, have hindered their ability to accumulate wealth and make home ownership a reality. This isn’t merely a matter of financial choices but a reflection of the economic environment they face, characterized by high housing costs and economic uncertainties.”
Less Home Ownership Than Prior Generations
So, will Millennials own homes at the same rate as previous generations? It’s looking increasingly unlikely, given the current landscape, Simonetti said.
“The dream of home ownership is becoming a rare gem, slipping through the fingers of many, especially with skyrocketing interest rates. But with a dash of innovation, a pinch of determination and a sprinkle of advocacy, millennials might yet find their own path to financial security, even if it doesn’t involve a traditional home with a white picket fence.”
However, Simonetti is optimistic, stating that, “Millennials are a resourceful bunch. They’re exploring creative options like co-buying homes with friends or considering alternative investments. And who knows, maybe they’ll rally for housing reforms that level the playing field against the institutional behemoths.”
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