Millennial Demand Is Expected to Keep the Housing Market Red Hot

December 15, 2021

Millennials were once thought of as the generation that would largely eschew homeownership, but after surpassing the baby boomers as the largest adult generation in 2019, Millennials now account for more than half of all home-purchase mortgage applications. Even with home prices skyrocketing, the generation accounted for 67% of first-time home purchase mortgage applications and 37% of repeat-purchase applications in the first 8 months of the year, according to data from CoreLogic.

The generation’s growing desire for homeownership is expected to keep home-buying activity strong and prices high for years to come.

Industry analysts have pontificated on why Millennial homeownership has lagged behind other generations. Some have suggested that graduating with student debt and entering the workforce during the Great Recession meant they lacked the savings for a downpayment. Others feel that watching the 2008 housing crash soured many Millennials on the idea of homeownership as an investment. While the cause of low homeownership may be up for debate, the consequences are clear.

Millennials face a wide wealth gap between themselves and previous generations and are missing out on home equity, one of the biggest sources of wealth creation, risk falling further behind. According to the Federal Reserve Bank of St. Louis, in 2019 households of older millennials had a net worth that was 11% lower than expectations based on previous generations’ net worth at the same age, while younger millennials’ net worth was 50% below expectations.

With inventory at historic lows and prices surging, first-time Millennial homebuyers entering the market may be in for sticker shock. Home prices nationally were up 13% from a year ago in October, marking a record 116 straight months of year-over-year increases. Still, because Millennials are purchasing homes with mortgage rates around 3%, compared to the 10% rate that faced many baby boomer first-time buyers, it is actually more affordable, despite higher home prices. A typical mortgage payment for a median-priced home made up 17% of the median family income during the third quarter of 2021, according to the National Association of Realtors. In 1990, when many baby boomers began buying homes, a mortgage payment accounted for 23% of the family’s income.

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