Why are Millennials Renting Rather than Buying?
The classic American dream has always featured a nice house with a yard for the kids to play in. However, fewer Millennials are achieving this version of the American dream compared to prior generations. Not only are they picking pets over children, Millennials are also much more likely to rent than buy when it comes to living space.
Is this just another sign of Millennials bucking the traditions set in place by Baby Boomers, or is there something more going on here?
Who’s Renting and Who’s Buying
Interesting data from the US census shows that the homeownership rate among Millennials is hovering around 35 percent. This may seem shockingly low compared to the homeownership rate among Baby Boomers, which at roughly 77 percent is over double that of Millennials, but the data is more nuanced than this.
What matters in interpreting this data is not which generation is presently more likely to own a home. Baby boomers are reaching the end of their long careers and beginning to settle into retirement. They have had a great deal of time to acquire homes for themselves and get comfortable in them, not to mention the credit and purchasing power to afford these homes.
Millennials, on the other hand, are just entering the workforce. They have not has as much time to establish credit histories and save money to buy homes of their own. For this reason, it’s important not to consider this data in terms of who rents and who buys today. Instead, we need to consider the homeownership trends of Baby Boomers when they were in their 20s and 30s and compare those to the rates among Millennials today.
This comparison reveals some interesting trends. Although the differences are not as striking as comparing present-day homeownership, there is no doubt that Baby Boomers were buying more homes earlier in their lives than Millennials are today. Recall that only 35 percent of Millennials owned homes in 2016. When Baby Boomers were in their 20s and 30s, they had a homeownership rate of over 40 percent.
The fact is that homeownership for Americans under 35 is at its lowest since the data became available in 1982. What could be driving this change?
Where are Millennials Living?
One might think that all Millennials are either living in homes that they own or renting their living space. However, this picture is far too simplistic. In fact, research has shown that almost one third of Millennials are choosing to live with their parents. This is more than any previous generation, so what’s the reason for this shift? Are Millennials just lazier than their predecessors? Not quite.
Shifting Economic Conditions
Some observers attribute the change in homebuying trends to the attitudes of Millennials. These observers claim that Millennials have no respect for traditions like home buying or little interest in picking up the torch from their parents and raising families of their own.
This couldn’t be further from the truth. According to Goldman Sachs, 93 percent of Millennials want to own a home someday and 74 percent want to have children. So if the interest is there, why aren’t Millennials getting to work on the American dream? Today, analysts are pointing to one major underlying cause: the state of the American economy.
There is one simple explanation for why Millennials aren’t buying homes like Baby Boomers did in their younger years: wages aren’t keeping up with rising home prices. Millennials aren’t making the kind of money that Baby Boomers did, making it harder for them to break into the housing market at this point in their careers.
This trouble with wages affects more than just the aspirations of Millennials, though. Experts worry that fewer home purchases from Millennials could have a negative effect on the housing market. Instead of bemoaning the lifestyles of Millennials, critics might benefit from attacking stagnant wages instead. Millennials want to buy homes and if they’ve given the resources to do so, the resulting housing boom could mean good things for all corners of the economy.
Image Source: https://depositphotos.com/
Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.
This post was updated August 16, 2017. It was originally published August 19, 2017.