What's Stopping Some Millennials from Buying Homes?

Millennials, or those who are currently between the ages of 23 and 38, now represent the largest living generation in the United States. Although the generation is well-known for growing up amidst the rise of the internet and coming of age during the Great Recession, one of their most talked about aspects is their lower rates of homeownership. Indeed, compared to the baby boomers and gen Xers when they were the same age, millennials own homes at a rate that is around 8 percentage points lower. In order to ascertain the reasons for this decrease, financial website LendEDU asked 1,000 millennials a variety of questions about their experience, or lack thereof, with the home buying process. Keep reading to learn about some of the factors that are holding back young adults from taking the plunge into real estate.

First, a word about the term "millennial". Although the range of birth years used to define the generation varies somewhat from source to source, this post will use the same range utilized by LendEDU (1981-1996), which matches the widely-cited range established by the Pew Research Center. "Millennial Generation" is synonymous with "Gen Y", as the generation was originally named due to its emergence following Gen X. Similarly, the generation after the millennials is most often referred to as "Gen Z". The cutoff for Gen Z is currently ill-defined, but has certainly already passed, meaning current newborns are already more than a full generation removed from millennials.

Getting into the survey results, LendEDU found that 42% of respondents did not own a home, although 89% of that group wished to own one in the future. The survey then asked about several possible reasons for why so many otherwise-enthusiastic millennials have been unable to achieve home ownership.

A majority (55%) of the surveyed millennials who did not currently own a home named their own lack of knowledge regarding the home buying process as a contributor to their inability to enter the housing market. Indeed, this lack of knowledge was borne out in the responses to several follow-up questions.

For instance, when asked "As a percentage of the total purchase price, generally what is the minimum down payment required to purchase a home?", the average answer given was 37%, a massive over-estimation of even the ideal amount of 20%. In fact, the true minimum is often just 3% depending on the type of mortgage. A similar over-estimation was made regarding the length of time it takes to get a mortgage, with the average answer being 72 days compared to the reality of around 30 days. Considering these misconceptions about down payments and timing, it's no wonder that this sub-set of millennials has been unable to purchase a home.

The survey also asked those who wished to own a home in the future to choose from a list of issues that might be holding them back right now. Here was the full breakdown of responses:

  • 26% of respondent answers were “Lack of savings”
  • 24% of respondent answers were “Low income”
  • 10% of respondent answers were “Overwhelming student loan debt”
  • 5% of respondent answers were “Overwhelming credit card debt”
  • 6% of respondent answers were “Other debt”
  • 17% of respondent answers were “Poor credit”
  • 8% of respondent answers were “Haven’t found the right home yet”
  • 3% of respondent answers were “Other”
  • 1% of respondent answers “None of the above”

As you can see, the most common issues were a "lack of savings" and "low income", which could be expected. It is also noteworthy to point out that, when combining the different categories, some type of overwhelming "debt" was cited by 21%, most often in the form of student loans.

As millennials transition into midlife and the population of baby boomers shrinks, the importance of these young adults will only become larger for the nation's housing market. While avoiding or eliminating debt is easier said than done, the findings of LendEDU's survey do point to one actionable piece of advice for prospective millennial home buyers: be sure to learn about the mortgage and buying process rather than let misinformation hold you back.