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by G. Steven Bray
As we enter the spring home buying season, could the millennial generation finally move out of their parents’ basements and become the home buying generation? Recent data are conflicting, but there is reason for hope.
Millennial homebuyers have several factors working against them. Wages have stagnated since the financial crisis while home prices have recovered in many markets favored by young adults. The result is reduced affordability. Student debt also is a problem for many Millennials. Recent surveys corroborate the anecdotes – Millennials are worried about their debt loads. Even if they could afford a home, they’re more interested in reducing debt than taking on a mortgage. Finally, those debt payments make it harder for Millennials to save for a down payment. As a result, homeownership among young adults has dropped more than 6 points to 36.8% as more Millennials are doubling up with friends or just living with parents to save on expenses.
But they’re also choosing to rent, and that may be an impetus for some to consider home buying. Home ownership is at a 20+ year low, whereas rental occupancy is at a 20+ year high. The result: Rents are rising quickly in many of the same areas Millennials prefer. So, while rising home prices make a buying home less affordable, in most areas, home buying is still a better financial decision than renting.
Two other recent trends suggest we could see home buying pick up. First, wages finally may be growing. While the data trend is only a few months old, recent announcements by several major employers that they’re raising their minimum wage suggest the trend may continue. Second, recent census data shows that household formation finally is gaining steam. While most of those new households are renters, those rising rent payments could encourage more to consider a home purchase.
Encourage fence sitters to try our Rent vs. Buy calculator on our Web site. It’s eye-opening how much more expensive renting can be.