Buying a house can feel next to impossible these days.But it’s not just the price of homes or mortgage rates going up that’s keeping the housing market tight. Long before the pandemic made supply chain issues commonplace, millennials have had extra trouble becoming homeowners.
The struggle is real. Why is it so bad?
Good question. A few reasons…
1. The Great Recession and Housing Bubble of 2007
A housing bubble happens when high demand drives up the prices of homes.In the early 2000s, investors turned to non-stock investments (thanks to the dot-com bubble) and the Fed dropped rates (hi, cheap mortgages) creating a massive demand for homes. Plus, fewer regulations meant you didn’t need great credit or great income to get a mortgage — but those payments came due. Along with higher interest rates.
And when those subprime borrowers couldn’t pay, the lenders went bankrupt, the global banking system collapsed, and we entered the Great Recession.
Which led to a maaajor slowdown in homebuilding.Even as the country recovered and the economy started growing again, homebuilding never picked back up to normal levels. But mortgage rates came back down and the homebuying population kept growing. And when demand outpaces supply, prices go up.
2. Home Prices Are (and Have Been) Outpacing Wages
Prices are through the roof. And wages are not keeping up. According to one analysis, median home prices grew 30% compared to just an 11% increase in median income over the last decade.
Homebuyers once enjoyed median home prices around four to five times the average income. Then, just before the market collapsed in 2008, that ratio went up to between six and seven. After the housing bubble burst, it fell back down and hovered below six for a few years. Fast forward to today, average home prices can now be more than seven times the median income.
To put that in perspective, in 1990 the national median home price was around $121,500, or a little more than double the national median income of $50,200. In 2020, home prices rose to around $358,700 while median income hangs out around $67,521 aka about one-fifth of the median home price.
3. Boomers Aren’t Putting Their Homes on the Market
In 2019, millennials edged out baby boomers as the largest living adult generation — just as their appetite for homeownership picked up. The millennial homeownership rate was on the rise prior to the pandemic. But as boomers have grown older many have stayed in their homes or looked to downsize. Meaning fewer homes for sale and ever more buyers looking for those small, single-family homes. And many of those boomer buyers already own homes meaning their home equity is likely helping them make competitive offers.
4. There’s Professional (With a Capital P) Competition
As fewer families can afford homes, investors and investment firms have stepped in to buy up properties — and then rent them out at a premium. It’s not a new phenomenon, but it is growing. And investors have increasingly sought single-family homes, aka the typical type of home first-time buyers are looking for.
5. Millennials Have a Student Loan Debt Problem
Plenty of research has found that millennials are delaying homeownership because of their student loan debt. The millennial homeownership rate lags behind rates for both baby boomers and Gen X when they were in the same age range. Though millennial homeownership has improved during the pandemic, some cite the student loan pause as a driving factor.
Continuing the pause on student loan payments or enacting broad forgiveness would likely help encourage millennial buyers. But again, the supply of homes needs to catch up for the market to get any easier.
Should I take “buy a house” off my to-do list?
You don’t have to. Just know that it’s hard out there.But the housing market goes through cycles, and the next phase could bring more affordability. Getting there might just require some patience. In the meantime, build a saving strategy that’s realistic and takes these factors into account.
Any tips for buying a house right now?
Stack your savings. The bigger your down payment, the better your chances of winning a bidding war and lowering your monthly mortgage costs.
Phone a pro. Looking for a house can take a lot of time and some insider knowledge can certainly help. A local real estate agent can help you know what to expect when you start your search.
Keep an open mind. It’s a good idea to have a list of non-negotiables and items you’d be willing to sacrifice when it comes to home features and logistics like your move-in date.
You might be eager to buy a home or feeling pressure from your elders to join the homeowners club. But housing market conditions are making it difficult for even the most-prepared millennial buyers.
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