Things may be turning around for Millennials looking to settle down into homeownership, but a comfortable market is a long way off.
In 1982, the U.S Census Bureau began tracking homeownership by age, and in more than three decades there has never been fewer American homeowners under the age of 35 than right now.
For many industries, Millennials are the target demographic. They have jobs, education, style and above all else, Millennials tend to spend a lot on consumer products. According to research from the Boston Consulting Group, U.S. Millennials represent an estimated $1.3 trillion in direct annual spending.
So why aren’t they buying houses? It’s certainly not because they don’t want to. A recent survey from Fannie Mae found that despite Millennial homeownership being down an eye-popping 47 percent from 2007, 90 percent still prefer owning over renting.
Barriers to Buying
There is no one reason that keeps Millennials largely on the renter’s market. When CNN asked Steve Deggendorf, a senior director at Fannie Mae, to comment on the lack of Millennials in the home marketplace, he responded: “When we surveyed Millennials, they cited several barriers to ownership, especially access to financing.”
It’s not as though Millennials don’t have money; they clearly represent a significant spending demographic. The issue is that young people coming out of college are doing so strapped with crippling student loan debt, tight lending standards, a poor job market and stiff competition from older, more established buyers.
- Student loan debt averaged $29,000 per student in 2012, according to CNN.
- Students entering the workforce with a $30,000 salary – 10 percent dedicated to loan payments – and an interest rate of 4.5 percent would need 13 years to pay it off
- In short, most Millennials can’t afford to buy a home – in the first quarter of 2014, Millennial homeownership slipped to 36.2 percent, down 0.6 percent since a year ago.
- That percentage is the lowest it’s been since the Census began keeping track in the early 80s.
Besides, even with the proper forms and finances in place, these young buyers still have to compete with often unmatchable offers from much older, richer buyers – some purchasing in all-cash.
There’s Still Hope
The outlook is bleak for hopeful Millennial homeowners, but there is a light shining at the end of the tunnel – small and muted though it may be.
“Mortgage lending is getting a little less tight, with lenders approving buyers with a little lower credit score and who have less of a downpayment,” Deggendorf said.
If the trends Deggendorf pointed out continue angling themselves towards a more approachable market, then Millennials might soon find themselves welcome in the housing market. Right now, however, it seems they might just have to wait.