Generation Rent: Why Millennials Aren’t Buying Homes

House For Sale sign and daffodils, Spring of 2010Back in the day, moving out of your parents’ home probably meant you were moving into one of your own.

But whether you blame it on the economy or just a generational shift in values, young adult homeowners are becoming increasingly rare.

Case in point: recent stats find that only 38 percent of millennials between the ages of 25 and 34 owned homes in 2012, compared to 52 percent of the same age group in 1980.

So just why is “generation rent” so adverse to home-buying?

Well, that depends on where they live. Asurvey from Carrington Mortgage Services found that the underlying causes actually vary from region to region.

In the Western states, for example, millennials are most worried about being able to shore up enough for a down payment. That makes sense — considering the region’s average down payment amount tends to far exceed the national average.

Moving over to the Midwest however, millennials have misgivings for a much different reason: student loan debt. Experts suspect this is because salaries tend to be lower here, leaving student loan debt taking a greater chunk of the generation’s take-home pay — and making homeownership a more daunting challenge.

In the Northeast, Gen Y is most concerned with credit card debt, while Southern millennials actually shy away from homeownership for two reasons: concern about low credit scores, as well as simply not knowing where to start.

But not everyone is ditching the white-picket fence altogether. Despite their current low confidence, more than half of millennials surveyed said that they plan to buy a home within the next two years.

Pending Home Sales Jump to Strongest Level in 9 Years

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WASHINGTON — Americans signed contracts to buy homes in April at the fastest pace in nearly nine years, evidence that steady job growth is strengthening the real estate market.

The National Association of Realtors said Thursday that its seasonally adjusted pending home sales index climbed 3.4 percent to 112.4 last month. It’s the fourth consecutive monthly gain. The index now stands at its highest level since May 2006.

The confidence has returned to housing, not only as shelter but as a good long-term investment.

“The confidence has returned to housing, not only as shelter but as a good long-term investment,” said Ron Peltier, CEO of Berkshire Hathaway’s real estate affiliate, HomeServices of America.

The upswing comes after a year of strong hiring, which has heightened demand to buy houses. Increased sales should help bolster the economy, but the surge could potentially destabilize the housing market, Peltier cautioned. Inventories remain low, causing home values to rise at a pace that is eclipsing wage growth.

Signed contracts are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

Pending sales increased in the Northeast, Midwest and South, while barely edging upward in the West. Greater demand has fueled sales growth this year after a lackluster 2014. Still, there is evidence that limited inventories are beginning to weigh on the market.

Sales of existing homes fell slightly between April and March to an annual clip of 5.04 million last month, the Realtors reported last week. The decrease may reflect complications in finalizing sales in addition to the shortage of listings.

Less Inventory

The inventory of homes listed for sale has declined 0.9 percent over the past year, so would-be buyers have fewer choices and may face bidding wars.

On average, existing homes sold in 39 days last month, versus 52 days in March and 62 days in February, the Realtors said.

Employers have hired 3.1 million new workers over the past 12 months. But wages are rising at a 2.1 percent annual clip, about four times slower than prices of existing homes.

Nationwide, the median price of an existing home surged 8.9 percent over the past 12 months to $219,400.

Unless home values level off because more supply comes onto the market, economists warn that buyers will be priced out of the market and sales will suffer.

Still, there is tremendous pressure on buyers to find homes quickly, since average rates for 30-year, fixed mortgages may start to climb from the relatively low sub-4 percent level.

A new analysis by Realtor.com indicates nationwide that waiting one year to buy will subtract $18,672 from the benefits of owning over the course of 30 years.