Two recent reports show that millennials are facing some major hurdles when it comes to homeownership.
A recent report from the Urban Institute, funded through a grant from Better Mortgage, suggests that because millennials (age 18-34) are more racially mixed, it has impacted their homeownership rate.
If the racial composition in 2015 had been the same as it was in 1990, the millennial homeownership rate would be 2.6 percentage points higher, the study finds.
The study also cites rising student debt, increased rents, delayed marriage, tighter lending standards and lack of inventory as major obstacles to obtaining and mortgage and a home.
“Millennials were found to face several obstacles to homeownership compared to previous generations, with minorities particularly impacted,” the study states. “If not addressed by the mortgage lending industry, government, and civil society, low homeownership will severely diminish the ability of millennials to achieve long-term financial security.”
The Urban study finds that the millennial homeownership rate is 8% lower than that of the baby boomer and Gen X generations, totaling 3.4 million fewer homeowners.
It also finds that high student debt has reduced millennials’ likelihood of owning. Roughly 46% of millennials have borrowed money for education and about 36% currently have student debt, compared with 18.0% for Gen X and 4.1% for baby boomers.
A mere 1% increase in education loan debt decreases the likelihood of owning a home by 0.15 percentage points, Urban’s research concludes.
Millennials are more racially and ethnically diverse than previous generations, and minorities have almost 15% lower homeownership rates than whites, the study finds.
The black homeownership rate fell by 9.7% between 2000 and 2015, which is a significantly larger drop when compared with other race/ethnic groups during this period.
Only black households did not experience an increase in homeownership during the housing boom, the study finds.
Better Mortgage says it plans to use the findings to advocate for extensive changes within the private sector, offering a call to action to its fellow lenders to improve millennial homeownership rates.
Vishal Garg, CEO and co-founder for Better Mortgage, says the Urban Institute findings “prove our hypothesis that millennials are not as involved in homeownership and unless we tackle this now they’re at risk of becoming a ‘financially lost generation’.”
Freddie Mac’s recent June Insights report finds that the biggest obstacle millennials face is that housing costs are rising faster than incomes.
“Historically low mortgage rates and increasingly favorable employment conditions should have generated a far greater number of home purchases by young adults, especially in the last five years,” says Sam Khater, chief economist for Freddie Mac, in a statement. “Unfortunately, home-price and rent growth above incomes – driven primarily by a severe shortage of housing supply – have been too high of a hurdle for many would-be buyers to clear.
“At a time when rising home values continue to build housing wealth for most homeowners, these weaker affordability conditions have led to a missed opportunity for the interested young buyers who are unfortunately priced out of the market,” Khater adds.
The Freddie Mac report shows that higher rents and home prices are the primary reason for the decline in young homeowners (49%), followed by lower marriage and fertility rates (22%), and a likely combination of student debt, a preference towards renting, borrowing constraints and other factors (13%).
The younger, more racially diverse population (12%), and increased migration to more densely-populated metro areas, which tend to be more expensive (11%), have also suppressed homeownership, Freddie Mac’s report finds.