Why Millennials are Struggling as First-Time Homebuyers
The younger generation of prospecting homebuyers are facing a much different challenge economically. Today, the economy is much harsher and it has forced millennials and young adults to live an "untraditional" life.
A recent Freddie Mac Insight study explored some of the challenges and presented some pretty interesting findings. These findings are potential answers to the often-used phrase, "adulting is hard."
"Compared to 2000, average annual expenditures for young adults in 2016 increased 36 percent, while average annual expenditures on health care and education have more than doubled," according to FreddieMac.
"The challenges faced by today’s young adults could be slowing household formation and represent a major obstacle to U.S. housing markets reaching their full potential."
In comparison to the the number of young adults purchasing homes in 2000, the number on young adults buying homes in 2016 was down 3.6%, according to the report. Shockingly enough, this is despite the fact that there are over 45 million young adults between ages 25-34 in the United States today.
The median home price was $60,000 higher in 2016 than it was in 2000 however, the Per Capita Income is just $500 more in 2016 than it was in 2000.
In addition to these economic odds, young adults are also holding off on marriage more than their predecessors. They aren't in a rush to start families and this translates to settling for smaller more affordable living conditions like apartments.
Overall, the study found that housing cost is the biggest deterrent to millennial housing formation.
"Housing costs alone, captured by median home prices, account for more than one quarter (28 percent) of the gap in household formation. From 2000 to 2016, real median house prices increased by 29 percent, but young adult per capita real income only rose one percent over that same period," according to the study.
"The increase in real house prices relative to income increased the ratio of median home prices to young adult per capita income from 5.6 in 2000 to 7.0 by 2016."
The odds are certainly stacked against millennials and these current situation can go a couple of different ways. The Freddie Mac Insight study highlights three scenarios as a part of their 2025 projections.
To learn more about the projections for 2025 and the issues prevent millennial household formation today, click on the image above.
