From the dawn of puberty, having your very own space has seemed like the ultimate goal. Who wouldn’t like to wake up to a slice of cold pizza washed down with a warm beer? “Not under my roof,” your parents would say, but with your own pad under your title deed no one can pick on for that.
Yet several factors indicate that our generation may not be as eager as older ones to purchase a home. Quel horreur!
The “American Dream,” of suburbia, nice cars, and manicured lawns doesn’t exist for this generation. Why?
We saw the housing bubble collapse
Real estate was the investment that guaranteed returns until the housing bubble burst. The subprime mortgage crisis revealed that investments in real estate were not risk-free. With the stench of that crisis still fresh in our noses does it make sense to still buy a house when people’s homes are being foreclosed on even when they have paid their mortgages?
Not only that but, according to Bay Area real estate blogger Bianca Torres, in today’s post-crisis economy, a member of Gen Y would have to pull in at least $142,000 a year in order to afford a home compared to Baby Boomers who could afford housing in their 20s if they earned $48,000 per annum.
Torres mentions other factors that can be linked to the late 2000s economic decline such as the disproportionate salaries that are paid to younger workers and older ones but most importantly…
Gen Y’ers want to live in cities
A recent study shows that 88% of the Millennials surveyed said they want to live in an urban setting. They value the ability to walk to work and not rely on cars and they want to live in the cultural centers with access to public parks, museums, restaurants and nightlife.
Real estate prices in urban areas are higher than the suburbs and many twenty-somethings cannot afford to purchase condos or houses in these areas. However, they can save money on overall living costs by renting apartments in the city. Our generation is also willing to sacrifice space and home ownership for the convenience and lower cost of living in cities.
Renting also frees ones up to be able to pack up and leave at their whims, which leads us to…
We want freedom to travel and live in new locations
According to a survey by Guardian Life Insurance Company, workers between the ages of 18 and 45 anticipate having an average of 8.3 jobs in their lifetime. These jobs changes bring many Millennials to new cities and countries on a regular basis. Our generation also has an insatiable urge to explore new places, travel the world and work remotely characterizes. Growing up in the age of variety, where one can easily spend ten minutes at the store debating which type of bottled water to buy, has made it somewhat difficult to commit to one thing.
This mode of living has made us more mobile in our approach to work and life thus purchasing real estate constrains us to one location and limits career flexibility.
Additionally, investments in real estate tie up extra cash flow which is used to satisfy our precarious needs. Some might say this very way of expenditure is why…
Millennials can’t afford a mortgage
Many Gen Y’ers entered the job market during the economic downturn and can’t find steady work. A briefing paper published in April by the Economic Policy Institute states: “in 2010, the unemployment rate for workers age 16 – 24 was 18.4% – the worst on record in the 60 years that this data has been tracked. To make matters worse, the graduating class of 2011 is the most indebted ever with an average of $22,900 of debt.
Our high unemployment rate coupled with student debt make Gen y’ers unattractive to lenders, especially as increasing regulations attempt to restore confidence in mortgage lending practices.
So what to do?
How about moving back in with the parents?
More and more Millennials are moving back in with their parents. They can’t find jobs or they’re transitioning between jobs, so they become Boomerang Kids. While it may sound unappealing, moving back in with your parents isn’t the end of the world as it allows Millennials to save money and grants flexibility to pursue non-traditional careers.
Will Millennials ever buy real estate?
While the factors above may suggest that Millennials lack interest in purchasing real estate, a Wells Fargo Study reported that people born between 1979 and 1991 still aspire to own homes. More than 70% of the Millennials surveyed want to own a home and (perhaps optimistically) most expect to own a home before the age of 30. Maybe they don’t want the same suburban homes they grew up in and the real estate market will need to adapt to the changing preferences of a new generation.
So maybe the good news for real estate brokers is that the American Dream isn’t over after all…just delayed by a few years?
Graphic by Julian Glander