Millennials seem to be delaying becoming homeowners; according to a recent Gallup poll, 14 percent of adults ages 24 to 34 are living with parents. With the real estate market still relatively weak, it is important to consider why even college graduates with promising financial futures are not buying homes. Here is why:
1. Student loan debt
While graduating from college does raise long-term earning potential, it also creates a significant financial hurdle, since graduating with a large amount of debt can be a major home-buying deterrent.
College students, as many as 7 out of 10, graduate with debt averaging $30,000. Even adjusted for inflation, this sum is exponentially larger than student debt in previous generations. Student debt can be discouraging, and it definitely gets in the way of qualifying for a home loan or saving for a down payment. And with no savings, losing an apartment is a much smaller risk than buying a home only to file for bankruptcy a few months later.
2. High price-to-income ratios
The current median new home price is $290,000, the highest in history. Supply and demand, already a pressing issue, is on track to cause full-fledged real estate crises in places like San Francisco that have booming employment and little housing. Low inventory keeps housing prices high.
3. Changes in lifestyle
Trends and shifts in lifestyles also play a role in determining why older millennials are not buying homes. Millennials are waiting longer to get married and have children, two milestone life events that tend to spur home purchases.
In 1950, the median age for a first marriage was about 21 for women and 24 for men. The average age of first-time mothers in 1970 was 21.4. In recent years, according to the U.S. Census Bureau, the median age for a first marriage is about 27 for women and 29 for men, and the average age for a first-time mother was 25.8 in 2012. Women between the ages of 30 and 39 are more likely to become first-time mothers than ever before. With people marrying and having kids at older ages, young adults tend to stay in small, rental apartments longer before buying larger places of their own.
In today’s world, young people seem to be more afraid to put down roots, lest they find a spouse or a better job in another city.
Marital status is the biggest predictor of whether adults between the ages of 24 and 34 live with parents or have their own place. According to the same Gallup poll, seventy-five percent of those living at home are single and have never married, and 46 percent of those no longer living with their parents are married.
4. Stricter standards for mortgage qualification
Many young adults with mediocre credit histories must undergo credit counseling for several months in order to resolve disputed debts and pay down outstanding loans before qualifying for new ones. This, on top of constant requests for numerous financial documents and statements, may deter potential homeowners unaccustomed to slow, labor-intensive buying processes.
According to a report by Experian, millennials have the worst credit scores of any group. Young adults tend to have a high utilization rate on their credit cards, a high incidence of late payments, an average debt of $23,332, and an average credit score of 628.
While a mediocre credit score might not have mattered as much 10 years ago, it takes higher scores to obtain a mortgage today. And improving a score takes time. High real estate prices and high debts have combined with low marriage rates and low credit scores to create a slow and uncertain housing market. Millennials are going to have to work hard, and keep working hard, for their chance to become homeowners in the current economy.