Millennial Home Ownership: a Dire Future

A Millennial (someone under 35) with a net worth greater than $10,400 is wealthier than half of their peers, according to a recent survey conducted by the Federal Reserve Bank. Explanations for this paltry figure include the post recession income drop, the exponential increase of student debt in recent years, the avoidance of stock-holding among young people and the fact that so few people in this demographic own their homes. 

A Millennial (someone under 35) with a net worth greater than $10,400 is wealthier than half of their peers, according to a recent survey conducted by the Federal Reserve Bank. Explanations for this paltry figure include the post recession income drop, the exponential increase of student debt in recent years, the avoidance of stock-holding among young people and the fact that so few people in this demographic own their homes. 

As stated by the Survey of Consumer Finances, annual earnings of more than $35,300 represent an income greater than 50 percent of those born after 1980. In the past four years, the median income of this age bracket has dropped by $2,300.  Further burdening nearly 42 percent of Americans under 35 is the presence of student debt, on average this debt amounts to nearly $18,000. Only 16 years ago the number of 20 and 30 somethings with student loan payments was only 23.3 percent. At the time, borrowers maintained a balance of only $10,000. 

Over the past five years young people have all but completely missed escalating equity prices. Less than 40 percent of Millennials indirectly or directly own stocks. Correlating with the harsh economic climate that they inhabit is the overall reduction of homeownership among those below the age of 35. Prior to the recession, over 40 percent of young Americans owned homes, today that number has dropped by five percent. Given the stability and security provided through homeownership, these figures are particularly troubling; with many Americans now entering the work force for the first time, the question becomes: how and when will this segment of Americans secure the financing needed to purchase a home? 

What makes a Millennial a Millennial?       

Millennials are distinct in many ways compared to the previous three generations. Pew Research Center surveys have identified an ideological gap between those born after and before 1980. Fifty percent of Millennials self-describe as politically independent and 30 percent as non-affiliated religiously. This is the largest degree of religious and political separation recorded since the Pew Research Center started polling for political and religious identity. 

The average age for marriage has increased to 29 for men and 27 for women, with the percent of 18-32 year olds married decreasing from 1960 to 2013 by almost 40 percent. Racial diversity in this group (43 percent are non-white) is the highest of any generation, with social attitudes being far more liberal than other generational counterparts. Social trust is way down yet economic optimism is up. This is perhaps a by-product of this generation growing up during the 1990’s economic boom and then graduating into a recession not experienced by this country since the 1930’s. 

While Americans younger than 35 have notably different views of religion, politics, social liberalism and self identification, the one ideal that has remained constant is the desire to one day purchase a home. A homebuyer poll coordinated by TD Bank demonstrated this attitude, 84 percent of respondents aged 18-34, currently renting expressed the desire to buy a house. Fifty percent of respondents called homeownership “a vital component of the American Dream.” 

How are young people going to qualify for financing? 

The pros of homeownership far outweigh the cons. By owning a home, equity is built, tax advantages are received, payments are stabilized and security is realized. Problematic for many of our nation’s youth is the potential inability to qualify for the financing necessary of home buying. Home loans call for minimum underwriting requirements to be met; these demands usually include minimum credit scores, debt to income ratio and residual income standards.

Because of the presence of student loans, the lack of health insurance coverage (health care costs are the number one cause of bankruptcy in this country) and limited or altogether no credit history (known as thin files), Millennials face an uphill climb toward realizing the dream of buying their own home. 

The good news; know what’s out there!

For potential home buying young people a silver lining does exist. Of those under 35, fewer are carrying credit card debt. According the Federal Reserve survey, in the past seven years the number of young people with credit card debt has dropped 12 percent. Furthermore, loan programs with lessened underwriting guidelines do exist. The FHA loan is potentially available for those with a credit score as low as 500. Additionally, other services offered may help young people improve their credit. An example of one of these services is Rent Track. Offered by Experian and Transunion, Rent Track allows tenants to improve their credit scores by paying rent on time through the service. An Experian-conducted study recently determined that 59 percent of renters’ scores improved after using Rent Track.          

While things look bleak right now, perhaps there is reason to be optimistic for the financial futures of our country’s young people. It is important to remember that previous generations also had a monetary jumping off point below the median income they now enjoy. Those under 35 are new to the work force, and income rises with age and experience.