The truth about Millennial homebuyers - Movement Mortgage Blog

There are 72.1 million Gen Y-ers, more commonly known as Millennials, in the U.S. Commonly the incorrect scapegoat of teenage hijinx, Millennials are actually older than many people realize. 


Born between 1981 and 1995, these 26-40-year-olds are at a prime age for taking advantage of the housing market. But the thing is – they’re not. The largest cohort of housing history just isn’t buying homes as fast as their predecessors. Why is that?


Rising Costs of Living

Freddie Mac estimates that 50% of the homeownership gap in this generation is caused by high housing costs, which have only climbed higher and higher over the past few decades – especially when compared to wages. Housing prices (adjusted for inflation) have increased 29% since 2000, but real incomes are only up about 1%, according to Freddie Mac. 


In 2000, the median household income was $42,148, and the median price of a home was $119,600. In 2021, the median household income was $79,900, and the median price of a home was $408,800. 


$1 in 2000 is equivalent in purchasing power to about $1.59 today, an increase of $0.59 over 21 years. The dollar had an average inflation rate of 2.22% per year between 2000 and today, producing a cumulative price increase of 58.54%.


Student Loan Debt

Millennials are much better educated than their parents and grandparents. These young adults have been obtaining bachelor’s degrees (and higher) at increasing rates – 39% of Millennials have a bachelor’s degree or higher, compared to the 15% of the Silent Generation, 23% of Baby Boomers and 29% of Gen Xers when they were the same age. 


But of late, the cost of education is staggering relative to overall inflation over the last few decades. Since 1980, the average cost of tuition has increased by 1,200%. Because a college degree is nearly a universal requirement to enter the workforce, Millennials bit the bullet and took out student loans in order to continue their education. And now, their debt is troubling. In 2021, Millennials carried an average balance of $38,877 per borrower.


Starting Families Later

Saddled with massive student loan debt, a higher cost of living and wages that haven’t risen to match, a societal shift has occurred in which people are marrying and having children later in life (if at all). 


A key difference between Millennials and their predecessors is the prevalence of women in the workforce. Today, 75% of millennial women are in the workforce (as compared to one-third of women in the 1950s). 


Many families depend on both parents’ incomes to stay afloat, so childcare costs must be factored into the equation. 85% of parents, compared to only 72% in 2020, report they are spending 10% or more of their household income on child care. 57% spent over $10,000 on child care in 2020, and 59% plan to spend more than $10,000 in 2021, which is more than the average annual cost of in-state college tuition ($9,580).


Speaking of tuition, for parents who want to financially support their child with college tuition, in 18 years, the Class of 2039 (a graduation year that physically hurts to type out) could be facing unthinkable tuition expenses if the current trends continue. 


And even from the get-go, not factoring in prenatal care and the running tab of supplies and accessories that come with bringing home a bundle of joy, the cost of the delivery itself has become more expensive in 2021. The average cost of a normal delivery in the U.S. (with insurance) is between $5,000 and $11,000, more for C-Sections (up to $14,500) and up to $30,000 in the event of complications. 


Oversaturated Workforce

Nowadays, it’s not uncommon to work into your 60s, 70s and even 80s. Some continue to delay retirement because they need the money, while others just enjoy what they do. Harmless enough, however, when more and more workers choose not to retire, challenges can arise. 


When the older workforce choose not to retire as expected, it’s increasingly difficult for younger individuals to backfill their positions. Millennials and Gen Z then have a harder time advancing through the ranks, or even breaking into their careers at all. This lower velocity in ascension means that Millennials aren’t working at their full potential, advancing their careers as quickly, and getting fewer promotions and raises to boot. 


Let us also not forget that the Millennial’s formative years were filled with tragedy and hardship – they came of age in the wake of 9/11 and in the middle of the Great Recession. Movement’s Chief Commercial Officer, Michelle Donnelly, dives into the psychological impact of this in her blog post. 


“Millennials want to own homes, but most of their experience has shown homeownership to be difficult, expensive and even threatening to their well-being. That stands in stark contrast to other products and services, which have all become easier and more affordable to obtain over their young lives,” she writes. “Many Millennials watched their parents lose jobs, homes and wealth in the 2008 financial crash. [They] witnessed first hand one of the ugliest periods in American housing history.”


The financial strain on Millennials is caused by something bigger than avocado toast, and it’s so important for mortgage professionals to understand the true socioeconomic factors at play when it comes to this generation of homebuyers. We as housing industry professionals can be the ones to help them overcome the many obstacles placed in front of them. 


About the Author:

Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.