Boomers and Millennials Disagree on Home Ownership Opportunity
To put it bluntly, Baby Boomers (those who were born from 1946 to 1964) hold a dim view of the complaints by millennials (a person born between the early 1980s and the late 1990s) concerning how difficult it is for them to afford to become homeowners. In short, Boomers believe that millennials could afford to buy a home if they were more disciplined about their spending habits. Boomers also think that millennials lack a strong work ethic.
Conversely, millennials believe they face economic challenges that Boomers never had to deal with. These were the findings in a study conducted by Clever Real Estate.
To be sure, millennials face a variety of challenges that Boomers never did (historically high home prices, high interest rates, wages not keeping up with inflation, etc.).
Boomers believe that the money needed for home ownership opportunities by millennials can be saved and used for a downpayment on a home, as opposed to superfluous spending. In fact, a 2023 Bank of America report found baby boomers' leisure spending grew 2% over the previous year, with much of it going toward travel and hotels.
Millennials respond that they are dealing with forces that are unique in that they face roadblocks in their path (student debt, stagnating wages, and elevated home prices as mentioned above). Furthermore, Millennials and Generation Xers (those born between 1996 and 2010) hold about 87% of the student loan debt. Also, 72% of those aged 44 and younger live in rental properties and faced rent increases for the fifth straight month in August.
“Back in 1980, rent was 14% of your average income, but since 2010, it increased to 25 to 30%," said Bennett Heyn, founder of Sell House Columbus. "Boomers think that by skipping Starbucks and other comforts, millennials will be able to save enough money to buy a house, but they're wrong."
Boomers also think of millennials as spoiled. For example, Boomers say, the younger generations are unwilling to compromise on where they want to live. Here, the Boomers may have a point. Millennials and Xers flock to larger cities which are usually less affordable. Urban areas offer their preferred lifestyle tendencies, with more restaurants, bars, and cool spaces to mingle. And these living choices are expensive and limit the opportunity to save for a downpayment on a home.
Due to the ongoing housing shortage, Boomers' homeownership decisions could significantly impact the market in the coming years. This generation, along with the Silent Generation (those roughly in their 80s and 90s) accounts for 38% of homeowners. As older Americans sell their homes over the next decade, Freddie Mac estimates 9.2 million houses will enter the market.
But for now, the Boomers are choosing to age in place which limits available inventory, and helps keep prices high, according to the law of supply and demand. After all, many of these Boomers are sitting on mortgages of 3 - 4%, and they see no reason why they should sell their current home for the privilege of buying a new home and paying a new mortgage of about 7%.
About 54% of Boomer homeowners never plan to sell, and only 15% intend to in the next five years.
Yet, Boomers may not really grasp how much the housing market has changed.
About 64% of older Americans paid $100,000 or less for their first home. Even more eye-opening is that only 11% of this age group made more than $75,000 annually at the time of their home purchase.
Compared to today, homebuyers need an annual income of $120,000 to afford the national average home price of $412,000. This puts the home price-to-income ratio at a very high rate, meaning today's workers must make much more money to afford a modest house. The difference between home price and income hasn't been this large since the 1970s.
While average income has roughly doubled during the last thirty years, home prices have gone up four to five times.
In addition to high interest rates, "Younger people like my kids need to spend 40–50% of their income on things like rent, groceries, bills, and more," points out Carl Fanaro, a real estate investor and CEO of Nola Buys Houses. "There isn't much room to save up to buy a house unless you have a high-paying job above $100,000, but not everyone can easily get a job like that in this economy."