By Paulina Cachero and Ella Ceron
Millennials get flak for a lot of things, but splurging on avocado toast and daily lattes aren’t what’s holding them back from owning a home.
With the average U.S. home price now topping $330,000 and decades-high inflation well outpacing wage gains, the generation now ages 26 to 41 is feeling the squeeze just as they should be entering their financial prime, leading many to put off marriage and having kids.
It’s easy in hindsight to say that millennials should have bought a home when prices were depressed in the aftermath of the 2008 financial crisis. But even then, millennials — the oldest of whom were around 27 years old — were saddled with debt and seeking jobs in an unforgiving market. Both the 2008 recession as well as Covid-19 struck at critical times in their developing careers.
In four charts, here’s why the dream of owning a home — and indeed, of financial stability altogether — may be slipping away for a cohort that comprises more than 70 million Americans:
Millennials Had Less Money to Pay More Debt
Working millennials were saddled with more student debt than previous generations and less money to pay for it when Lehman Brothers went bankrupt.
Median incomes fell by 3.6% in 2008, the largest single-year drop since 1967, according to the Economic Policy Institute, and continued to drop until 2012 on an inflation-adjusted basis.
According to economic data from the New York Federal Reserve Bank, consumers ages 18 to 29 had a debt balance totaling $1.01 trillion in 2007; student loans accounted for $211 billion of that debt, which was $40 billion more than those aged 30 to 39.
Millennials already in the workforce experienced widespread job losses the following year as the overall employment level for those considered in the prime working age (those aged 25 to 54) fell by 2.2 million, according to the Bureau of Labor Statistics. With the labor market constricted, millennials fresh out of college had limited job prospects and little bargaining power, sometimes competing with more experienced workers for entry-level roles.
Home Values Skyrocketed as Incomes Remained Stagnant
As many millennials reached the age that their parents may have started looking into homeownership, the Great Recession dug in and mortgage rates shot up above 6%. The ripple effects of the financial crisis were felt long after as median household incomes continued to drop, reaching their lowest in 2012 at $57,623. That only compounded as home values and costs of living bounced back.
Median household incomes in the U.S. grew by a meager 3.5% from 2012 to 2013, while home values jumped by 6.5% in the same time period. Just 47.9% of U.S. millennials owned homes in 2020, according to Apartment List analysis of census data. At age 30, millennial home ownership hit 42%, compared with 48% for Gen Xers and 51% for baby boomers.
Now, Americans are paying more than ever to own a home: an average single-family home was valued around $383,000 as of February, according to Zillow. First-time homebuyers, many of whom are millennials, are being priced out of homeownership entirely as home values jumped 20.3% in the last year alone and mortgage rates top 4%.
Faced with soaring home values, some 18% of millennials say they may rent forever.
Inflation Is Driving up the Costs of Raising a Child
As home values skyrocketed, so did the costs of raising a family.
Even as the U.S. economy began to show signs of recovery, consumer purchasing power weakened as costs of living grew faster than the working American’s take-home pay. That raised the bar to be able to financially support a family.
For middle-income families, the U.S. Department of Agriculture estimated that the total cost of raising a child until their 18th birthday — including food, shelter, clothing, transportation, childcare, healthcare and more — would amount to $204,060 in 2008. By 2013, that number jumped to $245,340.
In 2022, the family budget is likely even higher as inflation hits a 40-year high of 7.9%. For those hoping to have kids, the financial planning and the amount of money needed to support a family may seem even more daunting than ever before.
It’s certainly possible to move in together without tying a knot, and more Americans are taking that step. A 2019 survey by Pew Research Center found that the number of adults who have ever cohabitated with a romantic partner has risen while the number who have been married has fallen in recent years.
But there’s another reason why some millennials were slower to rush down the aisle and and perhaps subsequently buy a house: marriage equality was only ever achieved within their lifetimes. The oldest millennials were 23 when Massachusetts in 2004 legalized same-sex marriage. Efforts by LGBTQ-rights groups helped expand marriage equality at the state level in decade that followed. It would take another 11 years for same-sex marriage to be legalized at the federal level, with the Supreme Court decision in Obergefell v. Hodges.
More stories like this are available on bloomberg.com.