Born at the Wrong Time: Why the American Dream of Homeownership has Eluded the Millenials
According to the Pew Research Center and the U.S. Census Bureau, the oldest Millennials were born between 1981 and 1982. By the time they spoke their first words, the economic expansion of the Reagan years was taking root. With the end of the 1970s energy crisis and a decline of record high mortgage rates, Millennial’s parents (the Baby Boomers) upgraded to bigger and newer homes. Their quest gave rise to the McMansion.
The birth of the first Millennials coincided with divorce rates reaching a record high. The divorce rates stayed elevated into the 1990s. Millennials more than any generation before or since witnessed the end of their parents’ marriage. As a result, many from this generation have waited longer to tie the knot. Since marriage has always been a catalyst to homeownership, this is one of several reasons why Millennials have delayed becoming homeowners. According to the National Association of Realtors®, “2018 Profile of Home Buyers and Sellers,” first-time homebuyers accounted for 33 percent of home purchases in 2018. In 1980 that number was 44 percent.
The oldest Millennials grew up in a time of peace and prosperity. They were too young to remember the height of the Cold War and the first conflict they lived through was the first Gulf War – a victory so decisive that some soldiers in the opposing army surrendered to members of the press. There were some financial hiccups including a brief recession in the early 90s. However, the 1980s and 1990s were mostly a period of extraordinary economic growth driven by a computer and communications revolution.
Then on September 11th, 2001, Millennials learned the harsh realities of war but not from thousands of miles away. At that time the oldest members of this generation were budding adults. They were forced to decide their priorities as they set out in a changing world. A recession was taking hold. The labor market tightened, and the oldest Millennials soon found themselves with a college degree but few job prospects and a mountain of student loan debt thanks to the increasing cost of college tuition.
By the mid-2000s, the country was experiencing another period of growth driven by the housing market. Prices appreciated rapidly. Those Millennials who were in the work force had not been working long enough to afford the rising cost of homes – especially in or near major cities where young professionals tend to live. And then came the Great Recession. Not only did unemployment rates spike delaying Millennials access to high paying jobs, but the housing market went into a complete tail spin. When Lehman Brothers filed for bankruptcy in September 2008, the oldest Millennials were 27 and the youngest were only 8-12 years old depending how you define the generation.
What followed in the years after the Great Recession was a perfect storm for Millennials in their pursuit of homeownership. They were delayed entry into the job market; they were saddled with large amounts of student loan debt hindering their ability to save for a down payment, and the type of homes they wanted to buy were not readily available. Since Millennials waited longer to get married and have families, they have preferred smaller, turn-key homes. A lack of new construction has hurt inventory levels overall, but specifically smaller houses have felt the pinch because they tend to be less profitable.
So the question remains, what does the future hold for Millennials and the American dream of homeownership? Perhaps the generation that grew up with the laptop and the cell phone will be helped by new technology. The building industry has been slow to adapt to new technologies instead staying with the traditional approach to construction. Innovation in the building and materials sector could be a driver of change in the housing market. Another possibility for change could be in the form of tax policy giving builders incentives to construct the kind of homes that Millennials want. Finally, Millennials should also expand their criteria when house hunting. If they look to those older homes that need work they will find more supply and more flexibility on price. Unless some change takes place, the squeeze will probably continue. When it comes to homeownership– so far, the Millennials have gotten a raw deal.