Why is it so hard for millennials to buy a house?
I remember believing that “by 25, I’ll have my own home, and by 40, I’ll be a millionaire”. I’m 30 now, and both those dreams feel frustratingly distant. But I know I’m not alone, which makes things both comforting and scary. Will millennials ever be able to buy a house? It’s hard to know.
Millennials, the generation born roughly between 1981 and 1996, are facing a unique set of challenges when it comes to buying a house.
Unlike our parents’ generation, who entered a housing market where you could buy a 3-bedroom house with garden for two lemons and a handful of grapes, our reality is a bit different.
Soaring house prices, stagnant wages, and the burden of student loans are just a few of the hurdles standing in the way of the first rung in the property ladder.
So, this isn’t just a personal struggle; it’s a societal one.
Homeownership has traditionally been a cornerstone of young ambitions, offering stability and a path to wealth accumulation.
Understanding the factors at play, both economic and psychological, is crucial to finding solutions for our generation and ensuring a future where homeownership remains a viable option for young adults.
Let’s make millennials wealthy.
Why is it so hard for millennials to buy a house? The 2008 recession offers a clue
Oh man.
I think most of us remember the chaos of the financial markets in 2008.
People losing their savings, businesses closing down, and, of course, a lot of foreclosures.
This would have been “good” for people who had money. But I was in 10th grade and most millennials were yet to finish their college degrees.
Banks were demanding a whole lot of proof to give you a tiny bit of money. We’re still having to provide our ancestors’ birth certificates and the blood of a newborn goat just to be seen by a broker!
The risk aversion that followed the crisis continues to shape the housing market today.
Current Reality is Very Different to the 'Good Ol' Days'
Why is it so hard for millennials to buy a house? Well, part of the reason is because the world has just become a lot harder. Like, a lot!
There is a fundamental imbalance: skyrocketing housing prices far outpace wage growth (see pictures above).
This means us millennials are needing to save a significantly larger portion of our income for a down payment, leaving less for other necessities and delaying our entry into the housing market.
Compounding the issue is the burden of student loan debt, which not only impacts our ability to save for a down payment but can also affect our creditworthiness, making it harder to qualify for a loan in the first place.
On top of that, many of us are freelancers and contract workers. This rise of the gig economy further complicates the financial picture for millennials.
Unlike traditional jobs with stable salaries and benefits, gig work often comes with variable income and limited job security. This can make it difficult to secure a mortgage, as lenders often look for consistent income streams.
The lack of employer-provided benefits, like health insurance, adds another layer of financial stress when navigating the housing market.
But also, Millennials are just Build Different
Being parented by heavy-handed boomers caused a lot of us to rethink the traditional life plan our parents espoused. (And maybe also rebel, just a little).
Secure a good job, get married, have children, buy a house.
Meh. We’ve seen how that doesn’t lead to happiness.
Many of us are defying these traditional timelines.
Marriage and childbearing are being delayed, with millennials opting to focus on education, careers, and travel experiences before settling down. This shift in priorities have rearranged our homeownership goals.
A shift in values
Unlike our parents’ generation, whose focus may have been on accumulating material possessions, us millennials prioritise travel, personal growth, and building meaningful connections.
Social media platforms can fuel this desire, (hello, homesteading Instagram) showcasing curated glimpses of fancy destinations and adventurous lifestyles.
This shift in values can impact our approach to homeownership. My husband and I invested in a caravan before realising we wanted to go the traditional route after all. (It’s now proving might difficult to sell said caravan and get a house).
There’s also the concept of “renting as the new owning” that has gained traction. Ownership, particularly of physical assets like a house, doesn’t hold the same appeal as it did for previous generations.
We might be more comfortable with the flexibility and lower upfront costs associated with renting, allowing us to prioritise experiences and avoid being tied down to one location.
(Freedom seems to be a big thing amoung us!)
As safe as houses? We're not so sure...
While the financial crisis of 2008 had a profound impact on the mortgage industry, it had an even bigger impact on millennials’ economic outlook.
Witnessing the devastation firsthand instilled a sense of risk aversion in our generation. We’re more cautious about taking on debt, especially large mortgages, compared to our parents.
The lingering effects of the recession also contribute to a feeling of economic insecurity. Many of us entered the workforce during a time of high unemployment and stagnant wages.
This has led to a focus on short-term financial stability and a reluctance to make long-term investments like buying a house. There’s always the fear of another economic downturn keeping us from taking the plunge into homeownership, creating a cycle of renting and delaying financial goals.
Final Thoughts
Millennials face a perfect storm of economic and social obstacles when it comes to buying a house.
Soaring housing prices, stagnant wages, student loan debt, coupled with a desire for freedom, flexibility, and delayed marriage and childbearing complicates the traditional path to homeownership.
Despite the challenges, there’s hope for the future of homeownership for us. Innovative housing models like co-living spaces or tiny homes could offer more affordable entry points into the market. The rise of remote work could also play a role, allowing us to consider more geographically diverse and potentially cheaper housing options. (Sicily, anyone?)
Ultimately, the future of homeownership for millennials hinges on us getting real with our long-term goals. Whether its buying a house or travelling the world, we need to master ourselves and the mighty budget to get there.
The dream of homeownership might look different for millennials than it did for previous generations, but with creativity and collaboration, it can still remain a viable path to stability and prosperity