Within the housing industry, the rental market has become white-hot in many areas of the country. Home prices are also climbing toward pre-recession numbers. Yet, the statistics appear to be missing one key demographic: millennials.
In fact, millennials have remained consistently in the renter’s column or are delaying forming their own households. Few are making the leap to homeownership, a key factor in the overall growth of the housing industry. For example, an older couple would like to upgrade into a larger home. Without millennials to purchase their starter home, they cannot move up the housing food chain. So why are they delaying home ownership for a longer period?
One reason is the relatively flat wages versus housing prices. According to RealtyTrac, home price appreciation outpaced wages by a 13:1 ratio. Thus in roughly 76% of the country, home prices are far outpacing wages. If home prices are out of your budget, then you continue to rent. As a result, demand has driven rents up in a majority of the country. With other costs of living, millennials are finding it difficult to save for a down payment without any substantial wage increases.
Student loans may also play a part here, because millennials are entering the workforce already saddled with significant amounts of debt. According to New America, a millennial will graduate with roughly $30,000 of debt for a bachelor degree. Other degrees can push that figure to well over $100,000, depending on the area of study.
As with many areas of the U.S. economy, millennials are dealing with the consequences of the recession in terms of tighter lending requirements and larger down payments. So even with interest rates at historic lows for several years, millennials have not necessarily been able to take advantage of them.
The question for those in the housing industry is when will millennials make the leap to homeownership?
Historically it has been life events, such as marriage and children, which have prompted home purchases or the formation of new households. Yet they are delaying these life events as well. Still, within the housing market are some glimpses that this group has begun to dip more than their toe into the water of home ownership.
One such bright spot is Wisconsin. The Wisconsin Housing and Economic Development Authority (WHEDA) has reported millennials join the housing market in significant numbers. Of the single family home loans provided through WHEDA, 80% were made to millennials as of the end of July 2014. “I also believe WHEDA’s experience is an indication that the predicted wave of millennial home-buyers may come much sooner than later,” said Wyman Winston, executive director of WHEDA.
Those within the housing industry see millennials are taking advantage of various federal and state programs, which provide options to assist in building credit and a down payment. Additionally, millennials are one of the highest educated generations to date. So while they might take some time to find their way to homeownership, the leap will occur.