- October 16, 2024
- Posted by General Electric Credit Union
- 6 read
Is Homeownership Out of Reach for Younger Generations?
The average age to buy a first home is now the oldest ever on record at 36 years old.1 Diminished buying power, student loan debt, and competition from corporate investors—among other factors—have caused many young buyers to delay homebuying or consider it out of the question entirely. In 2022, the rate of homeownership in Ohio fell below the national average for the first time in the state’s history.2 Why do some millennials and Gen Z-ers consider homeownership an unattainable goal, and are there strategies to help them put buying a home closer in reach? Discover the answers and gain a better understanding of the housing crises buyers face.
Why millennials and Gen Z feel homeownership is out of reach
Real wages and housing prices
Over the past few decades, home prices have dramatically outpaced wage growth. Many millennials and Gen Z-ers are earning far less, in real terms, than their parents did at the same age. In fact, data from the U.S. Labor Department shows that $20 in 1995 had the equivalent purchasing power as $38.41 in 2022, with the price of consumer goods being 1.92 times higher in 2022.3 Lower real wages and higher prices on consumer goods resulted in a diminished opportunity to save for a home—and today’s housing prices are adding salt to the wound.
Homebuyers in past decades could typically find a home priced around three times their annual household income. In 2022, housing prices were nearly five times the median household income.4
Though the homes built today are larger, historical data for price per square foot clearly indicates this alone is not the root cause of the price increases. In 2000, the price per square foot was $70.43, while in 2022 it was $168.35.5
Outside competition
Demand drives up housing prices. And when it comes to homes in Ohio, today’s buyers have competition from out-of-state corporate investors who turn single-family homes into rental properties. In 2021, investors purchased 15% of homes in Cincinnati but as much as 70% of homes in one zip code.6
When outside investors buy up single-family homes and turn them into rentals, it reduces the supply of homes available for purchase by individuals and families, driving up competition and prices in the housing market. This can make it harder for first-time buyers to find affordable homes.
Additionally, investors often convert these homes into higher-priced rentals, which can increase rent costs in neighborhoods, further limiting affordable housing options for both renters and buyers.
Making the dream of homeownership attainable
Research mortgage options
There are a range of products and programs available to first-time homebuyers. Programs like FHA loans allow buyers to put down as little as 3.5%, while some states have initiatives offering down payment assistance or closing cost coverage. Researching these options can help make homeownership a more achievable goal. Your financial institution may also have affordable mortgage options. For example, low closing cost mortgages.
Reevaluate location
While living in major cities might be desirable for job prospects or lifestyle, it may be worth considering more affordable areas. The rise of remote work has opened new possibilities for people to live in regions with lower costs of living while maintaining their careers. Buying in a smaller city or even in a suburban area might not have the same appeal, but it can make homeownership more attainable.
Focus on building credit
A strong credit score can lead to better mortgage rates and terms, which can make a big difference in monthly payments. Younger buyers should focus on managing their credit carefully—paying down credit card balances, avoiding missed payments, and limiting new debt—to position themselves for better loan opportunities when they’re ready to buy.
Set realistic goals and start small
It’s important to acknowledge that the dream of a sprawling suburban home with a large yard may not be attainable right away—and that’s okay. Many young buyers are choosing to start small with condos or fixer-uppers that fit their budget. These properties can serve as stepping stones, allowing them to build equity and eventually trade up to larger homes.
Save smarter
An effective savings strategy includes growing your balance in the right accounts. A high-yield savings account will allow you to earn more in interest than you would in a traditional savings account. Over time, the compounding interest will help you build the savings you’ll need for a down payment on a home.
Rethink the down payment
The traditional advice to save for a 20% down payment might not always be realistic for millennials and Gen Z-ers. However, many lenders offer options with lower down payment requirements. By exploring low down payment loans—like FHA or VA loans—buyers can get into a home with less upfront cash, making the process more accessible.
It’s true that millennials and Gen Z-ers face unique challenges when it comes to homeownership, but the dream isn’t dead. By exploring creative solutions, adjusting expectations, and tapping into available resources, these generations can begin to move toward homeownership. While the road may be longer and more complex than it was for previous generations, with careful planning and determination, owning a home is still within reach. General Electric Credit Union is committed to helping first-time homebuyers find the right mortgage loan for them. Schedule a virtual appointment to talk through your options today.