Millennials want to own homes too, if the US economy would allow it
Property agents are celebrating noticeable uptick in buying among country’s largest age group
Kelsey Marshall and her boyfriend, Chris Eidam, both 27 years old, call the home-buying process “terrifying”. But they are clear about one thing – it beats the heck out of renting.
“We’re wasting money where we are right now”, near Bridgeport, Connecticut, Eidam said. “We just take our rent and we throw it away. That money doesn’t go to anything.”
Contrary to much of what is written about them, millennials have many of the same attitudes towards housing as their parents and grandparents. Most say they want to eventually own homes, and only rent because of financial necessity. They even appear to be choosing more traditional houses in the suburbs over renting or buying in city centres.
But home ownership rates are still near record lows, several percentage points down from before the housing bust, even after one of the longest economic expansions on record. And that is not because of some mindset among millennials – it is because of the economy they came of age in.
For now, property agents are celebrating a small but noticeable uptick in buying among millennials, the United States’ largest age group. For two straight quarters, the home ownership rate among those of ages 35 and younger has increased.
That shows that millennials are “getting back into the game”, said Ralph McLaughlin, the chief economist at residential real estate listings site Trulia. “In the long run, we expect millennials to own homes at rates of their parents or close to it,” he said. “It’s just that they’re experiencing headwinds.”
But what if these headwinds were to stay? Rents consume a larger share than they used to of earnings that are not growing much, making it hard to save for a down payment. Lending standards have relaxed a bit; still, young buyers already carrying record levels of student debt can struggle to qualify. Home building has lagged and become increasingly geared towards high-end houses, as wealth skews upwards. Perhaps above all, for the generation that is just getting started on careers, job security is a thing of the past.
“You go back 20 or 30 years, people would get a job in their late 20s, early 30s with the idea that they might work there until retirement,” said Dean Baker, co-director of the Centre for Economic and Policy Research and an economist who studies housing. “People aren’t in that boat today.”
For young people whose careers is likely to require frequent moves, the maths often does not add up. Owners have to stay put for some years to recover the transaction costs, especially in regions where prices do not rise much.
That is “not necessarily a bad thing”, Baker said. “It’s good for a lot of people to be a homeowner, but in a lot of cases, you might say someone wants the option. They’re in Chicago, New York and they get a good job offer in California or something – you want people to be able to take that. If they are tied to their homes, that’s a big commitment.”
There are barriers on the supply side, too. Builders have been shying away from the more affordable homes that millennials favour. That is limiting availability and driving up prices, leaving the market ill-prepared for a large influx of young buyers. Industry analysts cite labour shortages, restrictive zoning laws and materials prices among reasons.
But the US housing industry expresses confidence that millennials will come round to home ownership as their life situations change.
“In the long run, we’re going to age out of the problem,” said Trulia’s McLaughlin. “That may be, however, another 20 years before that starts to happen en masse.”