More than any other demographic, millennials have been eschewing homeownership for years, with one in five members of the generation planning to rent forever. But if delaying buying a home was once a lifestyle choice, 2022’s strained housing market has turned it into a brutal reality.
Soaring costs for homes and increasingly severe debt burdens mean that one out of every three renters is completely priced out of the homebuying market, according to a new survey by Redfin, a real estate brokerage firm.
Financial obstacles are complicating the homeownership dream for nearly 90% of all renters. For the renters looking to buy, now may well be the worst time to do so.
“A lot of American renters want to buy a home, but they’re stuck renting because it’s simply too expensive to break into the housing market,” Daryl Fairweather, chief economist at Redfin, said in the survey.
Who are the forever renters?
The average number of years people rent before buying a home has been creeping up for years, led by the millennial forever renters, and the current housing market is doing little to incentivize potential homebuyers.
The past two years have normalized high home prices in the U.S., which have soared 34% higher than before the pandemic, and 18.8% over the past 12 months alone. Renters looking to get a good deal when signing a deed are running headfirst into an unforgiving seller’s market, where getting a home at or below asking price is next to impossible.
The Redfin survey found that the most common reason that U.S. renters have not gone on to buy a home is that doing so in a desirable neighborhood is just not even close to what their budget allows. And the second most popular reason was that renters didn’t have enough saved up for a down payment.
Saving enough money for large down payments or monthly mortgage payments is a headache for any prospective homebuyer, but it is especially troubling for younger millennials, who are dealing with one of the worst debt crises of any generation.
The debt problem
The Redfin survey found that debt remains the most prominent factor standing in the way of homeownership for all renters.
Nearly half of all renters cited some kind of debt—credit card, student, or medical—as the biggest reason they couldn’t save up enough for the big payments that buying a home involves. Younger millennials are saddled with over $1.5 trillion in student loan debt alone, a critical impasse to homeownership despite their being the biggest homebuying demographic on the market right now.
The debt burden is delaying many prospective younger buyers from owning a home, cutting a lifeline to one of the most tried-and-tested methods of wealth building in this country.
“The fact that buying a home is out of reach for so many Americans is a driver of inequality,” Fairweather said. “Not owning a home means not benefiting from rising home values, one of the main ways to create and pass down generational wealth in this country.”
Rising mortgage rates are already drawing down the fervent competition for homes, which could lead to lower real estate prices later this year going into 2023. But younger home-seekers are having trouble saving for today’s mortgage rates, making it unlikely that this demographic will be able to move on from renting anytime soon.
