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  • Writer's pictureZiggurat Realestatecorp

Millennials shut out of the housing market, again

Millennials saw the largest increases in homeownership of their lifetimes between 2019 and 2021, according to a Washington Post analysis of new Census Bureau data.

Pandemic relief and historically low mortgage rates helped millions of millennials buy homes for the first time. As droves of younger people entered the housing market, the median age of home buyers dropped for the first time in nearly a decade.

But that tide abruptly turned in 2022.

Rising prices, decreasing inventory and high mortgage rates shut out younger buyers. The median age of home buyers skyrocketed to 53, the highest on record, according to a survey from the National Association of Realtors (NAR).

Millennials have always lagged behind other generations in homeownership. They started their careers in the shadow of the Great Recession, when highly paid work was hard to find. Lower earnings, high student debts and reduced wealth have followed them ever since.

Millennials reach major milestones including marriage, children and homeownership later.

When members of previous generations moved into rentals, many millennials stayed in their parents’ homes. When previous generations purchased their own homes, millennials moved into rentals for the first time.

Younger, first-time home buyers seemed to get a shot in 2021. Pandemic relief boosted savings for a down payment. Rents rose alongside home prices, and rock-bottom mortgage rates made it cheap to borrow money. Millennials moved into their own homes at the fastest rate ever seen for their generation.

“There was a life cycle component to leaving a parent’s household, renting and buying, and the timing for millennials may have been delayed compared to Gen X,” said Carlos Garriga, senior vice president and director of research at the Federal Reserve Bank of St. Louis. But in 2021, he said, “the millennial generation was catching up.”

That abruptly changed the next year. By mid-2022, the share of homes purchased by first-time buyers plummeted from 34 to 26 percent, the lowest level in at least four decades. The median age of home buyers shot up from 45 to 53, the oldest since NAR started collecting data in 1981.

“First-time and younger buyers in 2021 still faced increasing home prices, but we did not see mortgage rates climb to the same level that we have in 2022,” said Brandi Snowden, director of member and consumer research at NAR.

Mortgage rates began a rapid ascension in 2022. The average rate for a 30-year fixed mortgage has more than doubled in the past year, according to Freddie Mac, peaking at 7 percent in early November. Higher mortgage rates can translate to paying hundreds of dollars more each month to borrow the same amount of money.

According to Snowden, already high prices, low housing inventory and rapidly rising mortgage rates in 2022 “may have caused would-be buyers to delay homeownership.”

High mortgage rates also reduce the number of homes on the market. Homeowners are more likely to stay put when buying a new home, which means switching to a mortgage with a much higher interest rate.

The homeowners that do move get a financial boost from the increased value of their old home. But rising prices put first-time buyers in a worse position to compete for the shrinking number of available homes.

“Anybody who already owned a house did very well,” said Gray Kimbrough, an economist at American University. “The problem is, if you go from renting to buying in a really expensive market, you don’t have the advantage of all the equity other people built up by happening to own a house in a market that got a lot more expensive.”

There is little respite in sight for those hoping to buy their first home. The housing market is cooling, but mortgage rates are expected to remain high as the Federal Reserve raises borrowing costs to combat inflation. And the high costs of rent, food and other necessities make it more difficult to save for a first-time down payment.

“[For] people who aren’t able to find appropriate housing, it’s a lot harder to change a job, to get married, to have kids,” Kimbrough said. “And because we’ve made homeownership primarily for people in their 50s, 60s, 70s, 80s, it’s really hard for people who are earlier in their lives to move on to the next life stage.”

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