The financial circumstances facing millennials has made the average age of the first-time home buyer older, and for some, the situation looks so bleak that homeownership will likely remain out of reach, according to a new study.
In the study published by Legal & General, researchers found that the combined effects of stagnant income growth over the past four decades combined with record-rising home prices are reaching a point where owning a home may not be possible. And with
Legal & General surveyed millennials, generally defined as those born between 1981 and 1996, who currently do not own a home. Only 43% of millennials are current homeowners, making them the generation with the lowest homeownership rate. That percentage is also significantly lower than the overall American average of 65%. Legal & General found the median age of the first-time buyer has risen to 33, up 14% since 1981. Meanwhile, in that same time frame, the average age of all homeowners has jumped from the early 30s to 55, which takes into account both second-home purchases by baby boomers, as well as first-home buyers.
In August,
The underlying problem is income, according to Legal & General, who found that not only are stagnant wages failing to keep pace with home prices compared to previous generations, they can barely keep up with increases in everyday costs for many. In 2019, the Economic Policy Institute determined that the minimum wage was worth 17% less than 10 years earlier and 31% less than what it was in 1968. “If the minimum wage had kept pace with productivity since 1968, minimum wage would be $24 now,” the report said.
Meanwhile, the latest jobs data showed hourly earnings rising 4.6% on a yearly basis, outpaced by inflation, which increased at a consistent,
But even when companies
While average millennial income has increased 24% since 2012, housing prices have taken off, increasing by 86% in that same time frame. Nor are the recent housing increases restricted to specific markets or home types. The median price of a starter home in 2019 in the U.S. was $215,000, a 15% increase from one year earlier, according to the National Association of Realtors.
Using the generally accepted baseline that no more than 30% of income is spent on housing and basic living expenses, the average millennial could qualify for a home in the range of $220,000, provided they could afford a
“Looking at the overall picture, it would be hard to make the argument that millennials, at least those responding to our survey, are making a living wage — which, as of 2020, was calculated at
There are few signs of home price growth slowing dramatically in the near term. In July, the CoreLogic Case-Shiller index pointed to a
“Even back in the day when, like the Californias, Floridas, Arizonas, Texas were experiencing high price appreciation, the Midwest would kind of trot along at two or three or 4% price appreciation year over year,” said Dale Baker, president of home lending at Key Bank.
“But this time around, price appreciation has come to the Midwest also. And when you look at markets like Cleveland, for example, you're seeing double-digit price appreciation, which is not typical. So it would seem that prices are up everywhere.”
While the average age of the first-time home buyer has gone up, prices have not been the only cause. Many millennials have waited longer before pursuing major life choices compared to previous generations.
“Millennials have delayed key lifestyle decisions in favor of investing in the pursuit of education, pushing marriage and family formation to their early-to-mid 30s. Previous generations made these lifestyle choices in their 20s,” wrote Odeta Kushi, deputy chief economist at First American Financial Corp., in a blog post. “Marriage and family formation are two of the most powerful motivations for homeownership, so these delayed lifestyle choices tend to also delay the desire for homeownership.”
Education improves the prospects of owning a home, though, according to First American’s
At the same time, the price of education may also turn out to be a setback to homeownership goals for the millennial demographic. About
Tackling
“Homeownership is normally passed on from parents to children, and is considered a primary source of wealth generation. With the current trend that more and more people are unable to afford homes, how will this affect the wealth gap for future generations?” the report asked.