Millennial Homeownership: Will You Be Able to Afford a Home?

By Chika


Last Updated: May 26, 2023


Owning a home has been part of the American Dream, and it is one of the most significant investments many people plan for in their lifetime.

When home prices and interest rates drop, demand increases as people flock into the housing market to purchase a new home.

But over the past two years, the housing market has exploded. As a result of increased demand, home prices have risen by a record amount—roughly 34%—since the Covid-19 pandemic began. 

Although the market has just begun to show signs of cooling, young Americans still find it challenging to become homeowners. In actuality, more Millennials are postponing buying their first home.

In this article, we look at reasons why it is becoming increasingly difficult for millennials to purchase their first home. 



The Millennial Homeownership Problem

Millennials – adults between the ages of 26 and 41 - want to own a home someday, or even right now. 

A Bankrate survey of 2,529 adults, including 1,397 homeowners, found that 74% of Americans still consider homeownership to be the top indicator of realizing the "American Dream."

This surpasses:

  • the ability to retire (66%)
  • having a successful career (60%)
  • having children (40%)

A college degree was only mentioned by 35% of respondents as a crucial indicator of economic success.

But millennials are faced with a barrage of stumbling blocks to achieving this life milestone.



8 Reasons Millennials May Never Be Able to Afford a Home

1. Rising home prices

Rising property prices were generally cited by millennials as the main deterrent to home ownership.

The first-time buyer index released by the National Association of Realtors (NAR) for the first quarter of 2023 is currently at 67.6. 

An index value of 100 indicates that a family making the median income has exactly enough money to be approved for a property costing the median price. As a result, it will be harder for Millennials to buy a home as the affordability gap between home values and income levels expands.

For a house of $315,500, first-time buyers would need an income of at least $87,600 to qualify (the second highest in 3 years). They would also need to make a monthly payment of $1,825, after the initial 10% deposit, given the current 6.5% interest rate on US mortgages.


2. Rising rents

More Americans will find it harder to afford homes as a result of the rising rents. reports that the median monthly rent for April 2023 in the US currently stands at $1,967. Though rents peaked in August 2022 at $2,053, the current month's price still remains at an elevated level.

Over a two-year period, rents have risen 16.33% since April 2021, an annual rate of 8.17% that equates to more than $276.


3. Tighter lending standards

To lower risk, banks tightened credit underwriting. They also doubled down on the requirement that homebuyers put 20% down. However, Millennials are taking longer to save up enough money to put a down payment on a home as prices climb. 

It has an effect on their capacity to secure mortgages, because the majority of millennials began their careers during the financial crisis and early stages of the recovery when the economy and labor market were unstable. 

Loans with less than 20% down payments may be available through mortgage affordability programs. However, lenders frequently demand higher interest rates to make up for the higher default risk.

In addition, the majority of these mortgages will raise monthly payments by requiring Millennials to purchase private mortgage insurance (PMI). 


4. Singlehood

The decision to purchase a home is frequently motivated by life events like getting married or having kids.

The longer millennials live with their parents or on their own, the longer they will put off buying a property.

Compared to 1967, when 80% of adults aged 25 to 34 shared a home with a spouse or partner, less than 60% did so in 2018. According to U.S. Census Bureau data from 2022, the average marriage age is now 29.8 for men and 27.8 for women, indicating that people are actually getting married later.


5. High levels of student debt

By the start of 2020, the U.S. had almost $1.6 trillion in student debt.

Consequently, it is now a hardship for Millennials who are trying to enter the property market. In many labour markets, this same group must also deal with meager salary and raises, which makes it harder for them to repay their debt. 

More than 50% of homebuyers under the age of 36, according to NAR, claimed that student loan debt prevented them from purchasing a home.

According to an estimate from Apartment List, college graduates in 2018 who had no student debt needed to save for a 20% down payment in 7.6 years, whereas those who had debt needed to save for more than four years longer


6. Not enough homes being built

To accommodate the 72.1 million people of their generation, there are simply not nearly enough homes.

Homebuilders were unwilling to build more homes in the decade that followed the financial crisis, which contributed to the current severe housing scarcity.

There is no chance for relief from the housing supply shortage as homebuilders, who were finally stepping up building as earnings skyrocketed during the pandemic, are pulling back once more as concerns about a recession develop.


7. The elusiveness of self-starter homes

Even the types of homes being constructed have contributed to keeping out potential new homeowners.

As builders struggle to keep up with rising land and material costs, governmental fees, and zoning regulations that mandate minimum home sizes, so-called starter homes, which are perfect for first-time purchasers, are becoming more and more difficult to find.

Just 7% of newly built homes in 2019 were classified as entry-level, compared to 40% of new dwellings in 1980.


8. Aggressive buying market

For this diminishing resource, millennials face competition from other types of consumers as well.

Deep-pocketed investors are a new type of rivalry that their parents haven't had to cope with. According to Redfin, investors purchased a record-breaking 18% of all properties sold in just the fourth quarter of 2021.

Investors desiring less expensive properties are now competing directly with first-time purchasers as a result.

Additionally vying for homes with millennials are Baby Boomers.

Millennials, "face more competition from their parents' and grandparents' generations than their predecessors did," according to a 2019 study, which found that the share of recent buyers who are 60 years or older increased by 47% from 2009 to 2019.

What else? Boomers can take advantage of a rising market with more resources and win bidding wars.



The Bottom Line

Sure, every generation experiences difficulties, and yes, Millennials are now making about the same amount of money as their parents.

However, Millennials are in a more perilous financial situation than Baby Boomers or Gen X before them as a result of the slow start to their professions. Millennials have less wealth, more debt, and a poorer possibility of out-earning their parents than previous generations.

These factors—in particular the rising student debt—have made it difficult for them to purchase a home.

Photo by David Vives


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