Millennials Look to Income Improvements as Key to Unlocking Homeownership
Housing and demographics are inextricably linked. Speculating on the preferences of millennials, the largest generation in U.S. history according to some estimates, is a daily occurrence in the media. Some have argued that millennials are less interested in homeownership than previous generations, preferring the flexibility of renting. Many connected to housing finance are seeking new ways to tap the millennial population considering their potential to generate significant homeownership demand.
Our National Housing Survey™ (NHS) data indicates that millennial renters today have as much desire to own a home as the general population of renters. According to NHS data, the substantial majority of renters age 25-34 say that owning makes more sense than renting from a financial perspective. A majority also agree that owning makes more sense than renting from a lifestyle perspective. The vast majority of millennial renters tell us they plan to own a home at some point in the future.
The question is if and when millennials will be able to act on their plans to own. Most renters, including those age 25-34, think it would be difficult for them to get a mortgage today. Many Millennials and other renters cite financial hurdles, suggesting that they must see sustained growth in income before they become first-time homebuyers. They most often consider their personal finances, particularly their income growth, as the primary factor when choosing the right time to buy. Even lifecycle reasons such as marriage and children, often associated with first-time home buying, are less likely than financial factors to determine the right time to buy for millennial and other renters.
The vast majority of millennial renters indicate they do plan to buy at some point in the future, but appear to be exercising caution from a financial perspective. This caution may support more sustainable housing costs for consumers and a healthy housing market overall. While the crisis may have stalled wage growth for younger renters, recent improvements in household income seem to be reflected in consumer perceptions, with increasing shares saying that their household income is significantly higher now than a year ago. These improvements are an encouraging sign for millennial renters aspiring to own in the future.
Strategic Planning Analyst
Economic and Strategic Research Group
August 21, 2015
The author thanks Doug Duncan, Tom Seidenstein, Steve Deggendorf, Orawin Velz, Pat Simmons, Dave Keil, and Qiang Cai for valuable comments in the creation of this commentary. Of course, all errors and omissions remain the responsibility of the author.
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