Millennial Homeownership Still Lagging Behind Previous Generations

Millennials are buying homes at a lower rate than generations before, and an increasingly difficult housing market could exacerbate a problem that has far-reaching impacts on the entire economy. 

Substantially fewer of those born between 1981 and 1996 are homeowners today than Gen X and baby boomers were at the same age. Housing affordability is taking a toll on all generations, but the lack of entry-level homes and the dearth of new builds are particularly impacting millennials.

According to the Census Bureau’s Current Population Survey, homeownership rates for millennials sat at 51.5% in 2022, compared to 56.5% for baby boomers in 1990 and 58.2% for Gen X in 2006.

From the end of 2019 to the end of 2022, the median sales price of new houses sold in the U.S. has ballooned over 42% to $457,800. Concurrently, 30-year fixed mortgage interest rates rose from 3.74% to 6.42% largely in response to the Federal Reserve hiking the federal funds rate to fight inflation. 

This jump in both the price of new homes and cost of taking out a mortgage have made the last six months one of the most unaffordable times to buy a home since 2006, according to the Atlanta Fed’s Home Ownership Affordability Monitor.

Housing Is Increasingly Expensive—Less Than 1% of Newly Built Homes Were Under $200,000 in 2022

One of the chief factors contributing to lower rates of millennial homeownership is the overall cost of housing in the U.S. For nearly half a century, household incomes rose far slower than the price of a new home when adjusting for inflation.

In fact, the median cost of a typical 20% down payment was about 85% of the average millennial household's salary last year. That's considerably higher than the 75% for Gen X and 64% for baby boomers when they were the same age. 

There are many factors driving skyrocketing home prices, including rising construction and labor costs. However, one of the main reasons homes are so unaffordable that homebuilding that hasn’t kept up with population growth coming out of the 2008 recession, according to Domonic Purviance, a subject matter expert in residential real estate for the Federal Reserve Bank of Atlanta’s Center for Housing & Policy and Joseph Von Nessen, a research economist at the University of South Carolina’s Moore School of Business. Additionally, a larger proportion of homes that are being built are more expensive. 

Na Zhao, a senior economist at the National Association of Home Builders Economics Group, said this lack of homes under $200,000—commonly referred to as starter or entry-level homes typically bought by younger first-time homebuyers—is impacting millennial homeownership rates. 

According to data from the Census Bureau’s Survey of Construction, the proportion of new homes built that cost under $200,000 dropped from 10% of new home stock in 2019 to less than 1% in 2022. 

The pandemic has exacerbated an already substantial housing shortage due to near-zero interest rates and a demand surge buoyed by an overall pivot in consumer spending from services toward goods—in particular housing goods—at the outset of the pandemic. 

The subsequent rise in housing prices and mortgage interest rates are aligning almost exactly with large proportions of the millennial generation entering their peak earnings years—between ages 35 to 54—when they are most likely to be in the market for a home. 

Taking into account average household earnings, home prices, and mortgage rates, 2022 was the first year millennials had a more expensive home buying market than Gen X or baby boomers did at the same age. 

“If you make the median income there is no new housing that’s available for you,” Purviance said. “Now, a new house is a luxury product. It’s not an entry-level starter home product, that doesn’t exist anymore. Only high-income households now can afford to buy new homes and existing homes are barely attainable for somebody making the median income.”

How the 2008 Recession Impacted Millennial Homeownership

Another leading factor impacting millennial homeownership rates is that their generation started to come of age during the fallout from the Great Recession in 2008. 

“The Great Recession and multi-year recovery period occurred when many millennials were in their 20s and 30s, meaning that they were facing a difficult job market during the time period in which they were starting their careers and trying to save money,” Von Nessen said. 

In the rebound from the 2008 recession, banks tightened lending standards and home prices rose. This occurred right as millennials entered their household formation years, which kept them from buying homes at the same rate as previous generations, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania.

Homeownership rates for Gen X were also impacted by the 2008 recession. In 2008, Gen X homeownership rates stood at 60.7%, compared to 59.2% for baby boomers in 1992, the same age range for both generations. However in the next seven years, Gen X rates would only increase to 61.9% compared to baby boomers’ rise to 71%—a gap that is yet to be closed today. 

Millennials Are Settling Down Later in Life

Millennials are getting married and having kids later in life than previous generations, and that’s another factor holding them back from owning homes at the same rate.

Starting a family is a major trigger for home buying as the majority of home sales in the U.S. are for dual incomes, according to Purviance. Therefore, anything that delays household formation will put downward pressure on homeownership rates. 

“Millennials typically get married later, stay in school longer, and have more student loan debt when leaving school,” Purviance said. 

According to the Pew Research Group, U.S. household growth grew at 9% in the 2010s, its lowest recorded level.

Low Millennial Homeownership Rates Could Have Broader Economic Impacts 

Diminished homeownership rates for millennials are not just an issue for that generation. Homeownership, especially among those in their prime-earning years, is one of the more vital engines to the entire U.S. economy. 

When people buy houses they also make additional purchases such as furniture, lawn care, home remodeling and additions, and all of this spending has a substantive multiplier effect that benefits the economy as a whole, Purviance said. 

Indeed, according to data from the Bureau of Economic Analysis, spending on residential fixed investment–which includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers’ fees—accounts for between 3% and 5% of total U.S. Gross Domestic Product (GDP).

The Future of Millennial Homeownership

Millennial homeownership rates—while growing—are still notably behind baby boomers and even Gen X. While millennials have recovered from much of the lost employment and income of the 2008 recession, the high interest rates and expensive stock in today’s housing market makes closing the homeownership gap between previous generations even more difficult.

However, one potential policy alteration that could alleviate the housing supply shortage and provide more homes, particularly for millennials, is removing local government permitting and zoning rules that often increase the cost and delay new housing construction, Purviance said. 

According to Purviance, an increasingly large portion of the future in the housing market could be single-family rental and built-to-rent homes. 

“The market has sort of accepted that people aren’t going to be able to come up with a down payment anymore, buying a house is going to become more unaffordable and more people will have to rent,” Purviance said.

Methodology

Data on homeownership rates by generation were derived from the U.S. Census Bureau & U.S. Bureau of Labor Statistics’ Current Population Survey (CPS). Microdata from the CPS and its Annual Social and Economic Supplement were pulled from IPUMS-CPS, University of Minnesota, www.ipums.org. Homeownership rates for each generation were calculated using the age of the householder in a similar way to that of the U.S. Census Bureau’s Housing Vacancy Survey (HVS). Homeownership rate data by age between the HVS and this article will differ slightly due to differing age brackets between generations and those supplied by the HVS and data alterations done for general HVS data.

The median price of new houses sold data was sourced from the U.S. Census Bureau’s New Residential Sales product using data from the Bureau’s Survey of Construction. Median household income data was sourced from the U.S. Census Bureau’s Income and Poverty data tables. Data for both were accessed via the St. Louis Federal Reserve Bank’s FRED database.

Household income data by generation was sourced from the CPS microdata via IPUMS and is weighted by the number of households in the age group via the householder’s age. 30-year fixed mortgage interest rate data was sourced from Freddie Mac’s Primary Mortgage Market Survey and is the yearly average of weekly data accessed via the St. Louis Federal Reserve Bank’s FRED database. The home affordability index created in this piece takes into account only the weighted average household income for each generation, the median sales price of new houses, and the average 30-year fixed mortgage interest rate in a methodology similar to the Atlanta Federal Reserve Bank’s Home Ownership Affordability Monitor but omits property taxes and insurance costs.

All income and home cost data was adjusted for inflation using the Consumer Price Index for All Urban Consumers annual averages from the U.S. Bureau of Labor Statistics. Data and analysis code for this article can be found on GitHub.