You can argue about the impact millennials are having on the U.S. economy all day, but there is one fact — millennials are killing real estate.
Now, before everyone gets hot under the collar about it, let me explain.
First, you have to understand that millennials — those born between 1981 and 1997 — are the largest generation in U.S. history.
Even outpacing baby boomers.
So, logic would lead one to think that with there being more of them, their homeownership rate would actually be level, if not higher.
Not so fast.
According to studies, homeownership amongst millennials is actually less than for any other generation.
A report from the Urban Institute found that the homeownership rate for millennials age 25 to 34 is 8 percentage points lower than baby boomers. It’s also 8.4 percentage points lower than Gen Xers.
Continuing this trend has the potential to kill the real estate sector.
How Are Millennials Killing Real Estate?
The simple answer is that millennials are simply not investing in homeownership.
But there’s a bit more to it than that.
“Boomers bought real estate at unprecedented speed and price, thereby inflating a housing bubble from 1983 into 2005,” noted economist Harry Dent said. “Demand drove up the price. And that made them richer, especially the ones born earlier.”
And it’s not expected to get any better.
Data from the National Association of Realtors found that, as of the fourth quarter of 2019, 47% of millennials, many of whom are saddled with massive student loan debt, still believed it was not a good time to buy a home.
That is compared to just 30% of younger boomers and 27% of the so-called “silent generation.”
In all, Dent said that millennials simply won’t have the same impact on the U.S. economy as boomers.
“While millennials rival boomers in terms of numbers, they don’t and won’t have the same impact their grandparents had on the economy,” he said. “Their numbers are spread out rather than concentrated in a sharp wave.”
Impact on the Market
In 2004, homeownership was at its highest with nearly 70% of Americans owning a home.
Then came the housing bubble’s bursting four years later.
It dropped to a low of 62.9%in 2016, but it has since started to recover.
But with tighter lending standards and the fact that the millennial generation is more ethnically diverse, the largest generation not buying homes is going to put a strain on the real estate sector.
“The millennial generation is more multiracial, and thus has lower buying rates from the minorities,” Dent said.
Another factor is that millennials want to live in big cities, close to downtown areas. Housing that is available in those areas is extremely expensive, making it cheaper to rent.
That will drive the prices of homes up, making it financially difficult for prospective homebuyers to own their own home.
Even if now is not necessarily a good time for them to buy a home, millennials have to be better educated on down payments and zoning requirements should be eased to free up land and lower costs.
Otherwise, the strain on the real estate market is only going to get worse.