As the housing market heats up, younger buyers may be left behind as they aim to save up money for a down payment and secure steady jobs. The vast majority of millennials aim to buy a home rather than rent a residence, according to Trulia, but economic constrictions – namely debt – are holding millennials back from taking this important investment step. With millennials struggling to gain solid footing in a challenging housing market, renting will likely be a key stepping stone toward homeownership and investors can help move them forward by providing them with rental properties.
Consider this: homeownership for Americans ages 35 and younger decreased to 35.9 percent in the second quarter of 2014, according to the Housing Vacancy Survey conducted by the U.S. Census Bureau. In addition, other buyers are taking up the limited inventory in the housing market, which is raising prices, making homes unaffordable for many millennials, CNN Money reported. Not only are millennials in a highly competitive marketplace, they have less savings and feel the weight of debt, which could lower their chances of becoming qualified for a mortgage after lending standards have tightened.
Dean Baker, co-director of the Center for Economic and Policy Research, said a poor labor market has decreased the number of available jobs for younger people and increased the number of lower-paying jobs compared to previous years, which has led to fewer millennials buying homes, according to U.S. News and World Report.
“They also have a lot of debt,” Baker said. “So it’s not surprising that people in their late 20s or early 30s are less likely to buy a home than what might have been the case 20 or 30 years ago.”
Impact of debt on millennials and housing market
One of the main reasons many millennials are finding themselves needing to rent properties rather than buy is because they are racked with debt. A survey by Wells Fargo found 42 percent of millennials said debt was their No. 1 financial concern, and 4 in 10 of these respondents described their debt as overwhelming. Of the millennials surveyed, 47 percent said they were spending more than half of their income to pay off their debt.
When asked about their biggest financial worries, 29 percent of millennials said they were most concerned about paying back their student loans. About 15 percent of their monthly pay goes toward their student loans while credit card debt accounted for 16 percent. Until millennials are able to reduce their debt, most will likely be in need of rental housing.
Some millennials will have a hard time improving their financial health – other economists note that the economy is still recovering from the recession, which still has lingering effects on the job and housing markets, according to U.S. News and World Report. As many millennials still hope to be homeowners some day, they can choose to save up funds by renting properties. Since more millennials plan to rent, the rental property market will likely be rising in value as well as demand.