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Many of us are in the stage where we’re settled with our finances and the pressure of buying space is looming on us. For some this can be a comforting decision to make, for others - not so much. If you’re skeptical on whether to purchase a home (or not), we suggest you read this article before making an informed decision.
Buying a house might feel nearly impossible in current scenarios. But the tight housing market isn't just because homes are getting more expensive or mortgage rates are rising. Even before the pandemic made supply chain problems more common, there were challenges that millenial homebuyers faced.
Before delving into whether you must own your own house as a millennial, we'll tell you one thing - it sure is hard for this generation to invest into real estate.
Plenty of reasons have led to millennials finding it hard to own houses, and knowing them can help you make your decision and put things in perspective.
Here's why owning a home is much harder for millennials
The Great Recession of 2007 and the Housing Bubble
Ah, the Great Recession. Remember that? Its after-effects are still felt today, and millennials are the biggest losers.
When there is a lot of demand for homes, prices go up. In the early 2000s, investors turned away from stocks (thanks to the dot-com bubble), and the Fed lowered interest rates (hello, cheap mortgages), which led to a huge demand for homes.
Also, because there were fewer rules, you didn't need good credit or a high income to get a mortgage, but you still had to pay it off. Also, interest rates went up.
When these subprime borrowers couldn't pay back their loans, the lenders went out of business, the global banking system fell apart, and the Great Recession began - which slowed homebuilding down a lot.
Even after the country got back on its feet and the economy started to grow again, real estate never returned to normal levels.
But mortgage rates went down again, and the number of people buying homes kept increasing. When there is more demand than supply, prices will go up.
H3: Prices of homes are (and have been) rising faster than wages
One study found that over the last ten years, the median home price went up by 30% while the median income only went up by 11%.
This only reveals one thing - prices are out of control and wages are not going to keep up.
Homebuyers used to be able to pay four to five times the average income for a home.
Then, right before the market crashed in 2008, that ratio did go up to between six and seven. Just after the housing bubble burst, it went back down and stayed below six for a few years.
Today, the average price of a home can be even more than seven times the average income.
H3: Boomers aren't selling their homes
In 2019, millennials passed baby boomers as the largest group of adults still alive and well before the pandemic, the number of millennials who owned homes was on the rise.
But as baby boomers have gotten older, many have remained in their homes or tried to move into smaller homes.
That means fewer homes are on the market, and with nuclear families on the rise - the demand for smaller, single-family homes have increased.
And many of these baby boomer buyers now own homes, which means that the value of their property has gone up, giving them the edge to make competitive offers.
H3: There's professional (capital P) competition
It's not a new thing, but it's getting bigger. As fewer people can afford homes, investors and investment companies have stepped in to buy them and rent them out for more money.
And investors have been looking for more single-family homes, which most first-time buyers want.
H3: Millennials have a student loan debt problem
Many studies have shown that millennials put off buying a home because they owe money on their student loans.
The homeownership rate for millennials is lower than it was for baby boomers and Gen X when they were the same age.
While the number of millennials who own their homes has increased during the pandemic, some point to the student loan as a roadblock to adding on a new loan.
Millennials are likely to buy more homes if their student loan payments are put on hold or if they are forgiven in a big way.
But again, the market won't get better until there are more homes for sale. With all of these factors to consider, it becomes doubly (or triply) harder for millennials to keep up with their dreams and ambitions of owning a home.
But it's not always bad news - if you have a plan, nothing should be stopping you! While most millennials aren't opting for homes, you don't have to follow the trend.
Here are some tips to follow if you want to own your own home as a millennial
H3: Have patience and study the market
Patience is a virtue, but it's hard to practice. If you need to improve your credit score or save up for a down payment, you'll have to wait to buy a home some other time.
Gain knowledge about the market during that time. Keep an eye on the prices of homes in areas that interest you to see how much they go for.
When you're ready to look, hire a real estate agent to help you. They will help you find a home that meets your needs and fits your way of life.
They will also take care of the legal parts of the sale. They know how to help you through the process and can answer any concerns you might have. Make sure to talk to several agents before actually choosing one. This will help you find the best fit.
H3: Start saving early because home prices are going up
Prices for homes are much higher than they were in the 1980s. Since wages haven't increased at the same rate, it's harder for millennials to buy than previous generations.
People usually say that you should not look for a house until you've saved enough money for a down payment, which is usually between 3.5 and 20% of the price of the house.
But you should also have extra money saved to pay for closing costs and other fees and costs. What can millennials do to be able to buy a house when they have other financial obligations?
Some millennials may not care as much about owning a home, but that doesn't mean it's not a good goal.
Buying a home now takes more preparation and work than ever before. Use these tips as a starting point as you look for your perfect home.