Can Millennials Achieve the American Dream?
As the parents of two Millennials, my wife and I worry whether our children will ever be able to save enough to buy their first houses. Our children are both gainfully employed, one living in Philadelphia and one living in Washington. Both rent nice apartments in nice neighborhoods, though both spend more on their apartments than they should. However, because they are in good, safe neighborhoods, we don’t object. As liberal arts majors, neither child is bringing home huge salaries, but both are doing extremely well in their chosen fields. So we wonder, how can they move to the next step, home ownership.
Much has been written over the past several years that Millennials inability or unwillingness to enter into home ownership will cause the housing market to become depressed and prices to fall. However, the fact is that Millennials are entering into the housing market at record pace. Realtor.com chief economist Jonathan Smoke reports that 1 in 3 home buyers in 2016 will be Millennials making 2016, the first year that Millennials will make up the largest share of home buyers. The median age of home buyers remains in the 25-34 category (which is the definition of Millennials). However, Zillow chief economist Suenja Gudell says that 2016 the median age of first time home buyers will rise for the first time. (Info about Zillow here).
What has changed in the last several years is that first time home buyers, Millennials in particular, are slow to enter the market and are entering at a later age than Boomers and Gen Xers. This is true even though the cost of ownership is cheaper today than the cost of renting. As Millennials flock to the big cities where the cost or renting is at an all-time high and annual rental increases often out-paces increases in pay, Millennials can’t afford to save for down payments. In addition, crushing student debt is creating a cycle that many Millennials will be unable to work out of. Gudell says that Millennials are in a struggle not only to save, but also to qualify for loans. Accumulated debt and lack of income, despite historically low interest rates, will cause Millennials to put off home ownership longer than expected.
I will continue to tell my children to save, work hard and when possible, move out to the suburbs and find cheaper apartments to rent. Home ownership should be the goal, sooner, rather than later.