Millennials-those born after 1980 through the mid/late 1990s-are
not buying homes at the rate previous generations have. To determine why, Bank
of America Merrill Lynch conducted a survey of 1000 adults ages 20-34 across
various U.S. cities. This is what the company found:
Millennials want to own their own home, but lack the financial
resources to do so. 73% of survey respondents report
that owning a home is either very important (56%) or important (17%) to them,
indicating that Millennials maintain the strong desire to own
their own homes consistent with the classic perception of
the American Dream. However, Millennials have been negatively
affected by cyclical economic factors including high unemployment, lack of wage
growth, and lack of credit.
The study suggests that Millennials may have a
distorted image of interest rates as a result of growing up during a time when
interest rates were artificially low, hovering around 3-5%. Looking back in time
presents a different picture: since 1971, the median 30-year fixed mortgage
rate has been 7.98%. Employment for those ages 25-34 is 75.6%, which is more than the low
of 73.4 but still behind the pre-recession level of 83%. Wage growth has
been slow, with the real median income for those under 35 falling 16% from $42,000 in 2007 to $35,000 in 2013. Tight credit remains another issue. The
average qualifying FICO score as of July 2014 (690 and 760 for an FHA mortgage
and conventional mortgage, respectively), is nearly 13 points greater than the
average score back to 2000.
Student loan debt is also hindering
first-time homebuyers. One
quarter of survey respondents cite that student debt has prohibited them
from purchasing a home to date. The median education debt for
those under 35 was $17,200 in 2013. It is not a surprise, then, that the survey
revealed that Millennials who have student loans are 55% more likely to
currently rent than own a home.
Nineteen percent of Millennials are living
with their parents. This consists of 31% for those ages 20-24,
16% ages 25-29, and 10% ages 30-34. Many Millennials are living in an apartment
(38%) while others have their own home (31%). Not surprising, higher income
earners are much more likely to be living in their own home. 12% of respondents
making less than $25,000 own their own home, while 60% of those making $75,000-$100,000
own their own home.
Millennials are delaying household
formation, including getting married and having
children. Annual household formations of married couples lave dropped 61% for
those under 25, 41% for those 25-29, and 18% for those 30-34 since 1982.
Mellennials are having fewer kids, and they are having them later in life.
Birthrates for women ages 20-29 are decreasing while birthrates for women ages
30-39 are increasing.
As the economy continues to recover and
Millennials increase their earnings, they are expected to enter the housing
market in greater numbers. Half of those surveyed plan to buy a home within the
next five years. The American Dream is not lost: it is merely on hold.
