Homeownership Costs Weighing Down Millennials

Millennials are spending the highest percentage of their monthly income on homeownership costs compared to other generations. According to a new report by home equity investment provider Hometap, millennials are finding themselves at the greatest risk of becoming house-rich and cash-poor. As real estate values and housing demands remain high nationwide, millennials are also the least likely to know how much equity they have in their homes or rather, how to calculate it. Hometap surveyed 1,000 homeowners in the U.S. ages 25-75 through AYTM (Ask Your Target Market) in August 2021.

In addition to generational differences, the survey of 1,000 U.S. homeowners also found that 47% of respondents' finances have been negatively impacted by the pandemic, while 77% carry at least some form of debt or financial liability. Some 83% of millennials are also far more likely to carry debt than baby boomers. As a result, more than a quarter of all homeowners say they plan to maintain a tighter budget until their debts are paid.

"As we begin to emerge from the pandemic and residential real estate values remain near record levels, homeowners – especially millennials – have a great deal of equity tied up in their properties but are wary of taking on debt to access it," said Jonathan MacKinnon, VP of Product Strategy & Business Development at Hometap. "With the total cost of homeownership rising, and mortgage payments taking up an increasingly larger percentage of income, there is a growing need for solutions that allow Americans to tap their most important asset without going further into debt."

Hometap's report, Are Homeownership Costs Hindering Other Financial Goals?, uncovered the following key themes and findings:

Financial Impact of COVID-19 on Homeowners
Almost half of homeowners across the country have been negatively impacted in some form by the pandemic. Black homeowners have been hit the hardest.

• 47% of homeowners have been negatively impacted financially by the pandemic
• Of homeowners negatively impacted financially by the pandemic, 61% plan to tighten their budget or lower their spending until their debts are paid off
• 63% of Black homeowners say they have been negatively impacted, compared to 54% of Latinx homeowners and 43% of White homeowners

Growing Costs of Homeownership
Homeowners are struggling to keep up with the everyday costs of homeownership and are becoming increasingly house-rich, cash-poor. Millennials are especially at risk.

• 52% of U.S. homeowners spends at least 16% of their monthly income on mortgages
  • One in 3 millennials spends more than 26% of income on mortgage costs
• 46% of U.S. homeowners spend an additional 6 to 15% of their monthly income on other homeownership costs
  • Another 16% spend an even greater percentage of income on homeownership costs
• Only 38% of homeowners felt "very prepared" for these costs going into homeownership

Misconceptions & Lack of Understanding Around Home Equity Options
Many homeowners do not realize their home provides a source of tappable home equity and are therefore missing out on opportunities to capitalize on their assets, address urgent priorities, and achieve their financial goals.

• 52% of all U.S. homeowners don't consider their home an asset they can take cash out of when needed
  • 43% of U.S. homeowners don't know much equity they have in their home today
• Millennials are spending the highest percentage of their monthly income on homeownership costs, yet they're the least likely generation to know how much equity they have
  • 53% of millennials do not know how much equity they have in their homes and 55% do not know how to calculate it
  • 59% do not view their home as an asset they can use to obtain needed cash
• Conversely, only 31% of baby boomers do not know how much equity they have in their homes and only 39% do not know how to calculate it
  • Only 43% do not view their home as an asset they can use for cash

"Americans are more invested than ever in their homes, but still tend to view homeownership as a source of debt rather than equity," said MacKinnon. "These findings point to a broad lack of awareness of how to use home equity to unlock new opportunities without the burden of debt when their finances are already stretched."

Read the full report, with additional details on generational and demographic breakdown, here.