Can Millenials afford a Home?

The Millenial Generation, defined as anyone born from 1980-2000, has an uphill battle to climb. I know everyone thinks that they have a particular challenge to face that no generation in history has ever had, and I am sure in their own unique way, everyone has a point. Since I am a Millenial myself, I am going to run with it!

Today I am going to focus on one aspect of the Millenials life and see how it is really effecting everyone, of all ages - Housing.

Millenials really came of age in the beginning and then in the height of the Great Recession. While we are technically now out of recession for more than 4 years, it has been a SLOW recovery - the slowest of all time after any sizable recession. The US recovered from the Great Depression faster than we are recovering from the Great Recession.

That is not good news when you are in your early 20's, fresh out of college, looking for a job, a spouse, and a home. That was the norm for the Greatest Generation and the Baby Boomers, both our predecessors. If they did go to college, which many didn't, they finished, got married and started a family in their first little slice of the American dream. They then spent the rest of their life paying into that piggy bank we call equity, in the largest investment the majority of people ever make in their life. You pay the mortgage each month, you own a bit more of the house. You want a bigger house, you use the equity from the sale of your smaller house to get the bigger one. If you are smart, once your kids are grown and gone and you want to retire, you use all that equity over the years, downsize to a smaller and easier to maintain home and take that chunk you made from paying down your houses as a nest egg for retirement.

So where do Millenials stand? We emerged from college, which is now nearly mandatory in the entry level job market, with tens of thousands of dollars of debt to find no gainful employment. Our country was laying people off. Public spending ground to halt. Government at the local, state and federal levels were all shrinking. No jobs! Many Millenials became boomerang kids, moving back in with their parents after graduating from school. Some went on to get Master's degrees because what else could they do? They knew how to go to school, there were no jobs, why not go to school a couple more years and ride it out?

Now Millenials are starting their lives and starting their careers in close to six figures of debt, automatically disqualifying them from obtaining a home loan based on limited income (entry level job) and overwhelming monthly debt (student loans). Add to that the cultural shift in marriage to a later age and the delay of starting a family, and no one is buying homes!

Ok, so Millenials can't buy a home, why is that a big deal? There are a number of reasons:

1. Building new homes creates jobs. Construction jobs. Architecture jobs. Insurance jobs. All the blue collar trades (plumbing, HVAC, painting, etc), plus the planning, design, marketing, raw materials, and banking jobs that go along with a new home and what it takes to get it made and sold. It is said that building one average single family home creates 3 jobs that didn't previously exist.

2. Boomers have no one to sell to. If the Boomers are being responsible, and moving out when their kids have left the nest and started families of their own, they will sell their 3-5 bedroom house and downsize to something easier the maintain and cheaper to afford while they move into their hard earned retirement years. Can't happen if the boomerang kids are still in their childhood rooms. Can't happen if there are no buyers on the market to purchase the homes because they cannot obtain a home loan.

3. Building that Equity. The equity position in your home is like a huge piggy bank that you are forced to pay into the first of every month. You pay your mortgage and in doing so, you own a larger and larger piece of your home. Want to make improvements 5 years in? Great. Refinance, take out some equity and put it directly into updating a kitchen or bathroom. Makes your home worth even more, you didn't have to pay anything out of pocket, and now if/when you are ready to sell, your home is in a better position to sell quickly. No home for Millenials means that savings account starts much much later. Anyone who has ever talked to a banker or read an article on savings knows, in every possible case under the sun, the earlier you start, the easier it is. Period.

Covering the plight of the Millenial will probably be something I come back to time and again.  Since I myself am a Millenial, it isn't hard to find data, personal stories, friends that are going through this themselves. Among all the other problems that Millenials face, this one could be the most personal to each and every one.

Cheers

TJ