Purchasing a home is a struggle no matter your age. For millennials, however, the home buying process can be even more daunting, and homeownership among that particular age group has hit a new low.
Millennials are generally defined by the Pew Research Center as the generation born between the years of 1981 and 1996. Now being in their 20s and 30s, this generation would typically be poised to purchase their first family home. But still, many are choosing to forego homeownership. In fact, according to a recent Harvard study millennial homeownership rests at about 31 percent.
Why are millennials choosing to delay or forego homeownership?
The reasons behind this are, of course, vast and highly dependent on individual circumstances, but there are definitely recurring threads that many millennials can identify with.
Cautious About Homeownership Post Housing Crash
Millennials likely remember all-too-well what it was like living through the housing market crash and the subsequent recession that has had lasting consequences for nearly a decade. Many watched their parents struggle with joblessness, declining home values, and even foreclosure. The eldest in the millennial generation may have struggled with these same setbacks themselves.
People of all ages were affected during this period, but the younger generations were hit the hardest.
“Younger households were hit considerably hard or harder with the recession,” notes Abbe Will, a research analyst at Harvard University’s Joint Center for Housing Studies. “There are a lot of headwinds really for younger households to enter into homeownership today and moving forward.”
Millennials are Taking on More Debt
Seventy-five percent of millennials in the United States have some sort of debt, according to a recent NBC News/ GenForward survey. Twenty-five percent have more than $30,000 in debt, while an additional 11 percent owe over $100,000. For many, these debts are a reason to put off major milestones, such as marriage or purchasing a home.
A majority of this debt comes from a steady increase in college tuition hikes, which have caused millennials to take out a substantial amount in student loans. Recent estimates from the Federal Reserve indicate that there were more than $1.5 trillion in outstanding student loans just last year.
This can make it hard for millennials, even those who are married and have comparatively little student loan debt, to take on more debt.
“We decided to strictly focus on paying off our debt, and renting really helped us out,” Javier Gutierrez, a 26-year-old renter in Austin Texas told the Huffington Post earlier this year. “The last thing we wanted to do was become more indebted. We decided to strictly focus on paying off our debt, and renting really helped us out.”
They’re not the only ones who have chosen to do so. According to a survey by the National Association of Realtors, 83 percent of millennials who have delayed homeownership admitted that they did so due to their student loan debt.
For Many, Renting Makes the Most Sense
When you compare renting a home to buying a home on a basic level, buying might initially make a lot more sense. Mortgage payments can be very similar to rental prices depending on the current housing market and the city you live in. Even if you’re living on a fixed income, there are options available to help you with making your mortgage payments.
What many millennials are considering are the additional costs to homeownership that don’t come with renting.
When it comes to whether or not you can afford to own a home, there are a number of other factors to consider outside of the mortgage payment. Homeowners also have to consider the added costs of property tax, home insurance, and HOA fees. Homeowners also have to consider the costs of ongoing maintenance or home improvements, and the risks of investing in a home that might be rife with asbestos, lead paint, or mold, which not only have financial consequences but also health risks.
For these reasons and many others, renting might make more sense for millennials.
Gutierrez told the Huffington Post in the same piece that had he not been renting, he would have owed over $2,800 in damage to his roof. That’s a cost most millennials aren’t prepared to cover, even if they’re comparatively financially stable.
In addition, Gutierrez admits that by renting, avoiding down payments for homes, and avoiding home repair costs, he and his wife were able to pay off both their student loan and car payment debt in a matter of two years.
Millennials Who Forego Buying Homes Have More Flexible Lives
According to the U.S. Bureau of Labor Statistics, previous generations had a tendency to have an average of 11.9 jobs over the course of their prime employment age (18-50). There is no current evidence that exists that millennials are more willing to job hop over that same period of time. However, according to a recent Gallup report, many millennials are open to new and different job opportunities.
Naturally, this flexibility can get in the way of home ownership.
“I am in awe of [millennials’] mobility and flexibility,” Amy Irvine, owner of Irvine Wealth Planning Strategies told the Huffington Post. “Homeownership doesn’t allow for that.”
In essence, Irvine is arguing that if you live in a certain state and have an upcoming career opportunity to move out of state for a new position, owning a home can be a significant roadblock.
“[Millennials are] hopping around, living in different states just to explore–and you just can’t do that with homeownership,” Irvine concluded.
Not All Millennials Shy Away From Homeownership
While many publications and pundits have come to the conclusion that millennials aren’t interested in homeownership, there is a lot of data that suggests otherwise.
In fact, recent analysis by NerdWallet found that many millennials would prefer owning to renting, but have been postponing due to these real financial difficulties. Others postpone due to a lack of proper financial literacy or an insufficient knowledge of what it takes to purchase your first home.
A 2014 survey by Fannie Mae found that the majority of millennials viewed homeownership as desirable and far more sensible than renting for financial and lifestyle reasons. Homeownership allows for full flexibility and control of living space, privacy and security, decoration and the possibility for upgrades. According to that same survey, 49 percent of millennial renters posited that their next move would likely be homeownership.
“We’re not seeing a lack of interest,” Tom Collishaw, whose nonprofit Self-Help Enterprises helps California residents become homeowners tells Politifact. “We have all kinds of millennials that continue to contact us with interest in that (first-time homebuyer) program.”
While it appears that young people are interested in becoming homeowners, the issue of affordability will continue to be a roadblock, especially in larger cities. With additional education and understanding about the options available to them, however, millennials will have the opportunity to join previous generations in homeownership.