Millennials Miles away from Purchasing Property
“If millennials would eat less avocados, they would be able to afford a mortgage”, a common joke with regards to this generation and purchasing property. Only 4% of all households led by a 25-34 year old own their home outright and 35% are in the process of buying with a mortgage or loan. However, research has shown that Millennials are having to make huge sacrifices, with one in five saying that they’ve had to move back in with their parents. This blog post will look at the obstacles you might encounter as a millennial thinking about buying your first home.
According to Trussle, house prices are almost 15 times higher than they were 40 years ago, and are rising almost twice as fast as wages. The home-ownership rate among millennials ages 25 to 34 is around 8 percentage points lower than Gen Xs and baby boomers was in the same age group.
Ishaan Malhi, chief executive and founder of Trussle said: “It shows just how unaffordable it currently is for first-time buyers and there needs to be a serious commitment to innovation to make home ownership more affordable and accessible to young people once again.”
The current attitude is that home-ownership has stopped being a priority. Millennials on average prefer to spend their money on:
- Finding career opportunities
Home ownership may have been the biggest life goal for Generation X and Baby Boomers but it certainly isn’t for the majority of Millenials.
The delay in marriage most likely also has an impact on the low home purchasing rates. Being in a stable relationship greatly increases the probability of buying a home, therefore it is no surprise that the more commonly single millennials keep renting.
There are some hurdles purely psychological which this generation does have more control over, but material factors are harder to overcome even with self-control and determination.
High rent prices are one of the main hurdles that some millennials never overcome to purchase their property. Their preference is to live in cities where not only is the rent higher but property value is to, increases the time taken to save up for their home. They prefer to be in prime locations near their work or university, therefore it’s no surprise that it will take this generation longer to purchase property if they have high location standards. Having to pay high rent prevents many millennials from saving up to make their down payment. Some pessimistic surveys even claim that 14 million 20- to 35-year-olds will be renting in their 40s and a third could still be doing so by the time they claimed their pensions.
Student Loan Debt
Student debt, more common in this generation than in previous ones impacts their ability and commitment of purchasing their home. When you have debts to pay of it’s no surprise you prefer to focus on that rather than getting another loan even if it is to buy a home.
Student debts especially combined with stagnating wages and an increase in housing prices can be an obstacle preventing many millennials from purchasing their home.
Studying does on average increase your earnings, which should make it easier and faster to purchase your home, however, reality shows that the increase isn’t significant enough.
The fear of another recession has especially older millennials reserved to take out a mortgage. One Morgan Stanley analyst told Business Insider that the financial crisis left an entire generation with a “significant psychological scar.” With a less than ideal financial reality individuals are more cautious to put down payments to own a home. This fear is understandable and healthy, it shows that this generation wants to be as financially secure as possible before making a big commitment such as taking out a mortgage.
Millennials often get blamed for “killing the housing market”, but it’s not as simple as that. Even if millennials are putting off having kids (which are costly to raise) and weddings (which are expensive as well) to buy a home, a host of structural factors are getting in the way. Millennials aren’t intentionally killing home-ownership, or marriage, or having children; they just don’t feel like they can afford it.