Why Millennials Aren’t Buying Homes
Owning a home has traditionally been the idea of the American Dream; it’s one of the most significant purchases most people will make in their lifetimes. Typically, when home prices drop, and interest rates are low, there is a great deal of demand in the housing market.
However, nowadays, a group of individuals doesn’t necessarily have their eye on homeownership. Millennials are delaying the purchase of their home— if they are buying them at all.
One may wonder why they would choose to do so. Let’s explore why millennials aren’t buying homes at the same rate as previous generations, and choose to stay debt-free and enjoy the perks of renting instead.
Lack of Affordable Housing
Typically, a mortgage’s payments should not be more than twenty-five percent of one’s monthly income. If the payments are more than that, it means it’s unaffordable. If the affordability gap continues to grow, millennials will find it harder to purchase a home. According to the National Association of Realtors, the home affordability index was above 100 in January of 2020.
This value has fluctuated between 2015 and 2018, where it went from 109.3 to 92.5. A value of 100 would mean that an individual or family with a median household income would have exactly enough to purchase a median-priced home.
The index is an average across the United States, which means there are other areas in the country where homes may be more affordable. However, not everyone can relocate to a different state or city due to commitments such as jobs and family.
Not Married Yet
In 2018, less than sixty percent of people between the ages of 25 to 34 lived with either a spouse or partner. In 1967 it was eighty percent, so since then, a lot has changed. Nowadays, people are getting married later on in life, which means they do not have as much inclination to purchase a home.
In 2018, a woman’s average age for marriage was 27.8, and the age was 29.8 for men. Due to the change in the ages of individuals getting married, millennials choose to stay home for more extended periods, thus extending the purchase of their first home.
The longer Millennials are staying with their parents or living independently, the more home-buying and homeownership will be delayed. Millennials living at home with their parents increased to 22.5 percent from 13.5 percent in 2015.
By the beginning of 2020, student debt in the United States had reached $1.6 trillion. Entering the home market has become an additional financial burden for Millennials: they currently face financial stress in finding jobs with wages sufficient to help them pay off their loans.
More than fifty percent of home buyers under the age of thirty-six stated that student debt was the critical reason in delaying their home purchase. High levels of student loans mean individuals would need to save for about eleven years for a twenty percent down payment on a house. Those without any student debt would need to save approximately seven years.
Banks have tightened their credit underwriting to reduce risk, making it more difficult for potential home buyers to own a home. The majority of 25 to 34-year-olds started their careers during the financial crisis, and in its early recovery stages, this was when the economy and labor market were too fragile.
Although there are mortgage programs that may offer loans with less than twenty percent down payments, the interest rates on these loans tend to be much higher. Furthermore, additional costs associated with these loans, such as insurance, may end up putting an immense financial burden on individuals.
In such scenarios, individuals may find it more convenient to rent. Renting puts less financial strain on individuals, and you aren’t expected to pay all the additional costs that come with being a homeowner like insurance, property taxes, and maintenance.
Tired of Making Mortgage Payments?
If you’re a homeowner who’s still paying off student loans and find having a mortgage is putting an additional financial strain on you, you may be eligible to sell your home to KC Property Connection.
At KC Property Connection, we offer a more comfortable and faster way to sell your house in Kansas City. With us, there’s no commissions or hidden fees; we pay for all the costs and offer you cash.