This generation sees homeownership as a speculative asset with wild price swings. It's not their parents' housing market. Shaina Mishkin
The millennial generation hasn't had it easy in the housing market.
Born from 1981 to 1996, millennials came of age during two momentous events: a housing bubble that began to burst in 2006, and the Covid-19 pandemic starting in 2020. While the financial crisis and ensuing recession demonstrated some perils of homeownership -- rapidly falling prices and difficulties selling quickly -- the pandemic, with its soaring home prices, reinforced just how volatile prices could be while making ownership unaffordable for many.
Millennials emerged from those dual crises with a new attitude toward homeownership. Where their parents saw a first home as a low-risk investment that would gradually appreciate in value, this younger cohort sees something far more dangerous: a speculative asset with wild price swings that can make owners rich -- or bankrupt them if they get the timing wrong.
As a result, many are less apt to buy than their parents were at similar ages. Today' 30-year-olds, for instance, have a ownership rate of 43%, while baby boomers at that age were at 52%, according to a Redfin analysis of government data. The median age of a first-time buyer increased to 38 this year, its highest on record, according to the National Association of Realtors.
When they do wade into the real estate market, millennials are unusually picky about prices. They are "obsessed with timing the market," says Jack Elliot Heard, a New York City--based Compass agent. "People always want to try and catch the bottom or sell at the top."
Of course, finding a true bargain has rarely been more difficult. Builders pulled back for years after the financial crisis, creating the expensive and constrained market that millennials are entering today.
A generation can experience the same macroeconomic events, but their reactions -- and decisions -- can vary greatly, says Ashley Agnew, a certified financial therapist and senior wealth advisor at the Massachusetts-based Centerpoint Advisors. "The events that we live through shape everything about our finances," she says.
That could help explain why some millennials pounced at homeownership at the start of the pandemic and others didn't. The decision helped cement this generation's economic divide: Owners benefited from enormous home-equity gains while others shouldered rising rents.
"Millennials who weren't able to access homeownership are now facing one of the most challenging markets out there," says Lisa Sturtevant, the chief economist at Bright MLS, a home-listing information service.
They didn't have to lose a home from the crisis to consider buying property a gamble. They grew up in a time when homeownership was depicted in popular culture as a smart bet or a painful mistake -- often as two sides of the same coin. Mounting foreclosures that resulted from the 2008-09 recession were depicted in movies like The Big Short. On television, Property Wars and Flip or Flop followed investors buying distressed homes at auction to renovate them in hopes of a profit.
Some millennials, like Colorado-based Craig Curelop, 32, have gone all-in on ownership as an investment. In 2017, at age 24, he started buying homes and renting out individual bedrooms. Now, he and his wife live in a single-family home without renters, but Curelop continues to rent his other homes. "The sacrifices I made earlier allowed us to have a little bit more luxury and freedom now," he says.
Curelop says he never saw himself as a real estate investor until he discovered online real estate investing community BiggerPockets. Other websites take water cooler conversations about the housing market global: Zillow Gone Wild highlights the most outlandish homes for sale. Various Reddit accounts and YouTube videos run the gamut from predictions on a looming housing crash to tips on whether to buy or rent.
Millennials grew up with more instant information than previous generations. Online searches quickly produce property records and estimated home values, making it easier to gauge local trends, hunt for deals, and calculate the value of a home in the same way someone could check stock prices online.
Pia Levine, 33, bought her first home during the pandemic. She has no plans to move, but the Long Island, N.Y., resident says she's "still seeing what's available" by flipping through listings on Zillow. She said her husband calls the website "Tinder for houses," referring to the dating app where users continually swipe through profiles of potential suitors.
Some in the hesitant camp, perhaps with long memories of the housing market bust, see homeownership as an undue risk. "Living through this experience, people effectively become more risk averse," says Tomasz Piskorski, a Columbia Business School real estate professor. Younger generations are less optimistic than older ones about the growth in home prices over the next year, according to Fannie Mae's November survey.
Others see it as a burden. Re/Max agent Todd Luong, who has worked with buyers in the Dallas area for nearly two decades, has noticed a hesitancy among some young buyers. "I've had some people come to me and [say], 'I heard buying a home is a liability,' " he says. "That was kind of shocking to me."
In fact, nearly half of all millennial and Gen Z respondents to a recent Santander survey said owning a home is more trouble than it's worth, a significantly higher share than the 27% of Gen X and boomers who said the same.
Internet searches for "housing crash" rose to its highest level in years in the spring of 2020, according to Google Trends. Some buyers braced for the worst while others jumped in.
The bulls who bought largely have won out over the hesitant. "They're doing great," says Bright MLS' Sturtevant. They're building equity, accumulating wealth, and preparing to trade up. In a survey, the listing service found that homeowners in their 30s and 40s are more likely to sell and trade up than boomers in the coming year.
Those who bought during the pandemic managed to insulate themselves from rental inflation, one of the most stubborn drivers of overall inflation. The cost of renting a primary residence rose 4.4% in the 12 months ended in November, nearly double the overall rate of inflation in the same period. Since January 2020, rental costs have risen 26%.
That has given rise to a better sense of financial security for young homeowners. The share of Gen Z and millennial homeowners who told Redfin in September they were better off than they were four years prior was 17 percentage points higher than for renters, a significantly wider gap than Gen X and boomer respondents.
"With millennials, there is really a divide between those who bought houses and those who did not," says Jason Dorsey, president and lead researcher at generational research firm The Center for Generational Kinetics. Homeowners in 2022 had nearly 40 times the net worth as renters, according to the Federal Reserve's most recent survey of consumer finances.
That gap has implications for millennials' economic well-being and societal divide as they age. Increased inequality can spur political polarization and impede economic growth, according to the International Monetary Fund.
These conditions threaten the perception of homeownership as a path to wealth. Some millennials who can't buy will fall behind in wealth creation, while others will seek alternative investments. An annual National Association of Realtors survey showed that the smallest share of recent buyers see a home as a better investment than stocks than any since 2006.
Buying a home in today's expensive market isn't an easy solution to bridge the divide, and that will keep some millennials waiting in the wings. "There are a lot of people on the sidelines," says Compass' Heard.
But perceptions could change if the housing market loosens up. If mortgage rates drop quicker than expected, those millennial market timers could jump in, spurring competition and raising home prices. "When they decide to enter back in the market, it's definitely going to shake things up," Heard says.
--Graphics by Molly Cook Escobar
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
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December 13, 2024 21:30 ET (02:30 GMT)
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