Millennials have a complicated view of homeownership. They’re stressed about buying a home but are still desperate to purchase one. Most don’t have nearly enough money saved for a down payment, yet they’re unwilling to make financial sacrifices, such as spending less on coffee or vacations, to save. Most already have a lot of debt but are still willing to take on a mortgage with a high interest rate.
These are some of the findings from a new Clever Real Estate study that investigates millennials’ outlook on home buying. The study finds that this generation is anxious and reckless — but motivated to buy a home.
Millennials Face Significant Obstacles
Nearly all millennials said they have at least one barrier to homeownership. The most common barrier is the cost of homes, cited by 46% of millennials. Next is high interest rates at 40% and difficulty saving for a down payment at 34%.
These responses suggest millennials face overlapping challenges that make buying a home more difficult. High prices make homeownership out of reach for many, compounded by interest rates that have significantly reduced their buying power. Meanwhile, wages are too low to save for a down payment.
“They’re dealing with student loan debt that Gen X never had to this degree, stagnant wages that haven’t kept pace with inflation, and home prices that have completely disconnected from income growth,” said Taylor Price, personal finance expert and founder of Priceless Tay. “Add in high interest rates and the fact that many are supporting aging parents or young kids, and you’ve got a generation that’s been priced out of the American dream they were promised.”
Even with homebuyer rebates or downpayment assistance programs, many millennials are locked out of the market. Nearly 2 in 3 millennials have delayed their plans to buy a home because of the housing market. Of those who delayed their plans, 56% have put off buying a home for at least three years, while 23% have put it off for five years or more.
Desperate Times for Millennial Buyers
Although millennials face a daunting housing market, many still aspire to own a home, even if it requires significant financial risks.
About 44% of millennials said they would be willing to spend half of their monthly income on housing if it meant they could buy a home, even though experts recommend paying no more than 28% of gross monthly income on housing. Furthermore, 49% said they’d consider accepting an interest rate above the current level of 6%.
Millennials have an emotionally fraught relationship with homeownership. Although 61% say the idea of purchasing a home makes them feel in over their heads financially, 40% say they’re desperate to buy a home, whatever the cost.
Millennials don’t have to have that feeling, said Priya Malani, founder and CEO of Stash Wealth. Many millennials, she said, are a prisoner to external expectations that may not always be in their best interests.
“There’s a narrative problem,” Malani said. “Millennials are constantly told they’re either locked out forever or they must buy a home at any cost. Both extremes lead to bad decisions. Homeownership isn’t a moral achievement; it’s a financial choice that needs to fit into a broader plan.”
Malani recommends millennials build a sustainable financial foundation before even thinking about buying a home. If they can’t comfortably buy, then they should wait until their situation improves.
“Forcing it usually creates more stress, not stability, and definitely not the feeling of success,” Malani said.
Millennials’ Savings Can’t Keep Up
Many millennials may not realize how far behind they are. Although 53% think they have enough money saved for a down payment, many of them are mistaken.
A 20% down payment on the median-priced home would cost about $80,000, but 72% of millennials have less than $75,000 saved. Roughly 55% of millennials don’t even have $40,000 saved for a 10% down payment. It’s no wonder two-thirds of millennials plan to put down less than 20% on their home — a decision that will dramatically slow their equity accumulation.
Nearly half of millennials have been saving for a down payment for at least 5 years, but many fall short because of their debt. A quarter of millennials have more debt than savings, and three-quarters have some non-mortgage debt.
Nearly half carry at least $10,000 in debt, with around a quarter owing more than $30,000. 16% are in debt of more than $50,000. This much debt is likely a major contributor to millennials’ inability to buy homes.
Millennials Are Motivated to Buy, Reluctant to Cut Back
Although millennials say they’re highly motivated to buy a home, most are unwilling to give up their daily luxuries to achieve that goal. Approximately 77% of millennials said they wouldn’t reduce their spending on gym memberships to save money for a home, 67% wouldn’t spend less on coffee, 65% wouldn’t spend less on concerts and other events, and 63% wouldn’t spend less on travel or vacations.
To get on the road to homeownership, financial expert Shinobu Hindert says they should start by consulting a Realtor and a lender to create a budget. Once they’ve set those financial parameters, they should put together a savings plan, but they shouldn’t rely on their own financial discipline and decision-making.
“Automating savings is one of the most effective strategies to save for a down payment,” Hindert said. “Treating down payment savings like a fixed monthly bill helps create momentum.”
