Millennials are out of the housing market, and older homeowners have more control

This changed abruptly in 2022. Younger buyers were denied entry due to rising prices, low inventory and high mortgage interest rates. According to a survey by the National Association of Realtors, 53-year-olds are the most recent homebuyers.

The millennial generation has always been behind the rest in homeownership. They began their careers during the Great Recession when it was difficult to find high-paying work. Since then, their earnings have fallen and they have experienced high student debts as well as a reduction in wealth.

Millennials achieve major milestones such as marriage, children, and homeownership later.

When members of previous generations moved into rentals, many millennials stayed in their parents’ homes. Millennials first moved into rental homes after their parents bought their own houses.

In 2021, younger first-time buyers were more likely to be successful. Pandemic relief helped to increase savings for a downpayment. Rents rose along with home prices. Rock-bottom mortgage rates made borrowing money affordable. The fastest time millennials have moved into their own houses was in the last five years.

“There was a life cycle component to leaving a parent’s household, renting and buying, and the timing for millennials may have been delayed compared to Gen X,” said Carlos Garriga, senior vice president and director of research at the Federal Reserve Bank of St. Louis. But in 2021, he said, “the millennial generation was catching up.”

The housing market is cooling. What’s it like in your area?

The next year, however, was a shocker. Mid-2022 saw a drop in the number of homes bought by buyers from 34 to 26%, the lowest level for at least 40 years. Since 1981, NAR began collecting data on home buyers. The median age shot up to 45 years old.

“First-time and younger buyers in 2021 still faced increasing home prices, but we did not see mortgage rates climb to the same level that we have in 2022,” said Brandi Snowden, director of member and consumer research at NAR.

The rapid rise in mortgage rates started in 2022. According to Freddie Mac, the average 30-year fixed rate mortgage rate has more than doubled during the past year. It topped at 7 percent in November. Higher mortgage rates could mean that you pay hundreds more per month to borrow the same amount.

According to Snowden, already high prices, low housing inventory and rapidly rising mortgage rates in 2022 “may have caused would-be buyers to delay homeownership.”

The number of homes available for sale is also reduced by high mortgage rates. When buying a home, homeowners are more likely not to move. This means that they will be less likely to switch to a mortgage at a higher interest rate.

Calculate how much mortgages will increase in price as interest rates rise

Homeowners who move receive a financial boost due to the increase in value of their home. Rising prices mean that first-time buyers are less likely to be able to purchase a home in order to fill the void.

“Anybody who already owned a house did very well,” said Gray Kimbrough, an economist at American University. “The problem is, if you go from renting to buying in a really expensive market, you don’t have the advantage of all the equity other people built up by happening to own a house in a market that got a lot more expensive.”

For those looking to buy their first home, there is not much relief. Although the housing market is slowing, mortgage rates will remain high due to rising borrowing costs by the Federal Reserve to combat inflation. The high cost of rent, food, or other necessities makes it difficult to save enough for a down payment.

What it’s like to buy and sell in the new, weird housing market

“[For] people who aren’t able to find appropriate housing, it’s a lot harder to change a job, to get married, to have kids,” Kimbrough said. “And because we’ve made homeownership primarily for people in their 50s, 60s, 70s, 80s, it’s really hard for people who are earlier in their lives to move on to the next life stage.”

Data on homeownership and renting comes from the American Community Survey (2007-2021). IPUMS USA provided microdata for 1960 to 2019, while R package tidycensus provided 2021 microdata.

Traditional measures of homeownership or rentership were based on the characteristics and status of the householder, which is the primary owner/renter of the property. This story, however, focuses on individual living conditions to better reflect the experiences of whole generations and capture trends associated with age. This story will focus on three types of people: those who live with their spouse, unmarried partner or in their own home; those who live with their parents or in a rental home; and those who live in a rental home.

Data on the median age of home buyers and the percent of first-time home buyers comes from the National Association of Realtor’s Profile of Home Buyers and Sellers.