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Why Don’t More Millennials Own Homes?

millennialsThe millennial homeownership rate lies far below that of Gen Xers and baby boomers. Less than a third of millennials own homes compared to three-quarters of baby boomers and 60 percent of Gen Xers, according to a research by the Urban Institute.

What’s perhaps even more telling is that the homeownership rate among millennials ages 25 to 34 is also well below that of Gen Xers and baby boomers when they were that age. The homeownership rate for millennials aged 25 to 34 is 37 percent, compared to about 45 percent for both Gen Xers and baby boomers at that age.

Researchers at the Urban Institute examined millennials’ relationship to homeownership and made policy recommendations for increasing it in their July report titled, “Millennial Homeownership: Why Is It So Low, and How Can We Increase It?”

Some of the factors contributing to the lower homeownership among millennials include the fact that they tend to delay marriage and having children in pursuit of higher education and their preference for living in high-cost cities that have high-skilled labor forces.

Other pertinent factors include market-related trends such as tight credit, a decline in affordable housing, and high rental costs that hinder the ability to save for a down payment on a home.

Marriage and parenthood are correlated with higher rates of homeownership in general, but the Urban Institute pointed out that even among millennials who are married with children, the homeownership rate remains two to three percentage points lower than for the same types of households from the past two generations.

The pursuit of higher education poses somewhat of a conundrum when it comes to the likelihood of homeownership. Higher education correlates with higher homeownership rates, and millennials are pursuing education in droves.

As of 2015, 65.8 percent of heads of household ages 18 to 34 had at least some college education. This is up 10 percentage points from 1990.

However, “increasing education debt has reduced millennials’ likelihood of owning a home, as debt increases their debt-to-income ratios and lowers their remaining income to save for a down payment,” the Urban Institute researchers explained.

Educated millennials are also likely to live in high-cost cities with highly skilled populations. Here housing costs run high, and homeownership runs low.

The Urban Institute advocates increasing millennial homeownership on the grounds that it is a good tool for building wealth.

Some of the policy initiatives the Urban Institute advocates are:

  • Offer online financial training for high school and college students.
  • Incorporate rental and utility payment history into credit assessments.
  • Alter zoning and land-use laws to allow construction in markets with tight housing supply.
  • Increase fintech in the mortgage industry. This has the potential both to lower costs by streamlining processes as well as to reduce racial and ethnic disparities. The Urban Institute cited research that finds minority rejection rates “less pronounced” for fintech lenders.

The Urban Institute also examined intergenerational patterns and found correlations between parental wealth and homeownership and the homeownership of young adults. Pointing out that the millennial generation is more diverse than generations past, the Urban Institute stated, “Because minorities are less likely to be homeowners and have less wealth, differences in intergenerational transfer of homeownership provides an additional explanation for the persistent disparities in homeownership across racial and ethnic groups.”

About Author: Krista Franks Brock

Krista Franks Brock is a writer and editor who has covered the mortgage banking and default servicing industries since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.

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