The anxiety this generation feels about the prospect of never owning a home is influencing their entire perception of their finances and the economy, says Moody’s chief economist Mark Zandi.
“If they feel like they’re excluded from owning a home, it skews their perception of everything else that’s going on in their financial life,” Zandi says.
Millennials have long been plagued by a brutal housing market. They faced not one, but two catastrophic economic events—the Great Financial Crisis in 2008 and the pandemic in 2020. The Great Recession devastated the real estate market as the economy nearly collapsed under the weight of fragile mortgage-backed securities. While the pandemic brought with it a boom in remote work that sent millions of city dwellers fleeing to the suburbs, sending home prices soaring.
Failure to address the U.S. housing affordability crisis will mean young people who “already feel disenfranchised,” Zandi said, will lose faith in the economy and vent their frustrations on Election Day for President Joe Biden. (Luck spoke with Zandi in the context of his team’s analysis, which predicted the outcome of the 2024 elections based on economic results.)
Bad news for Biden
“Home ownership is just not affordable,” Zandi said. Luck. “If housing affordability turns out to be worsening and their prospects of becoming home buyers diminishing, it will undermine Biden’s re-election bid.”
Then, last October, mortgage rates soared to their highest levels in more than 20 years. exceeded 8%. For millennials, these high rates, coupled with the recent cost of living crisis, appear to have made home ownership even more unlikely. Mortgage rates are now falling and hovering around 6.8%, giving potential buyers hope that the housing market may be becoming more manageable.
When interest rates are 6%, “people feel like they have a chance to become homeowners at some point,” Zandi says. “Mortgage rates are really important” to this.
Although the current pace is still far from what it is today. rate 2.6% in January 2021, which were among the lowest on record. It is unlikely that they will return to this level, but they are there. expected continue to decline. According to some estimates, they go like low 5.5%. Other economic signs also point to an improving economy as inflation falls and the job market continues to be strong.
Combined with the decline in mortgage rates over the past few months, this should make it easier for millennials to afford a home, which is something they care about a lot. December analyst note A Bank of America study found that homeownership is more important to millennials than it was to their parents when they were the same age. One of the reasons this particular generation is placing such emphasis on homeownership is because it is a way for people to insulate themselves from other forms of economic shock.
“The goal of homeownership is growing because of its importance as a respite from an uncertain economic climate,” says John Walkup, co-founder of real estate analytics firm UrbanDigs.
The plight of older millennials
This doesn’t mean millennials and Gen Z are completely unable to buy homes. In fact, analysis from Bank of America Research shows that young millennials ages 28 to 35 are closing the homeownership gap compared to Generation X and Boomers. There have been some improvements since the pandemic, with homeownership rates among young people higher than in 2019. according to progressive economist Dean Baker. However, they remain below where they were before 2008 and its epic housing crash. Both figures, however, illustrate the fact that millennials have never fully recovered from some of the economic shocks they experienced.
Particularly affected are older millennials, who are bearing the brunt of these multiple economic setbacks and the current affordability crisis. They found themselves in an exceptionally troubled housing market while also being saddled with crippling student loan debt and a recession that hit just as they were entering adulthood. One housing executive estimates that homes are so unaffordable that incomes would have to rise 55% to keep pace with prices.
A big part of the American dream involves buying a home, not only because of the sentimental factors of owning a home, but also because it is a critical source of income. wealth creation. “Historically, real estate has been a surefire way to build wealth… especially for the middle class,” says Monisha Rana, a realtor with Coldwell Banker Warburg in New York.
The typical homeowner’s net worth is 40 times higher according to the National Association of Realtors. Selling a home, especially if its value has increased, which is likely this year with Morgan Stanley forecasting a 5% increase in home prices, can create a windfall for families, much of it tied up in their home equity.
Not owning a home can have long-term consequences on a person’s financial situation throughout their life.
Homeownership is associated with “more deeply ingrained feelings about the economy, especially for young people,” Zandi says. “If they can’t afford to buy a home, it really undermines their overall thinking about everything else when it comes to the economy – their job, their salary, their net worth.”