There’s been a “massive wealth transfer from the public to the private sector,” Bank of America Research strategists led by Ohsung Kwon wrote in a new note, resulting from two things: From 1980 to today, government debt has risen from 31% of the gross domestic product to 120%, and 10-year Treasury yields have gone from 12% to 4.6% at the time of writing. (The 10-year Treasury was sitting at 4.9% as of press time.) Add it all up and household wealth increased from $17 trillion to $150 trillion, a record high. 

The winners of this great wealth transfer? Baby boomers—and they especially won the housing market. They and the “traditionalist” generation hold two-thirds of total net worth, BofA said, and boomers alone hold more than half of all wealth, the majority in financial assets, including real estate. 

Boomers locked in the best rates, and millennials missed the boat

To be sure, when boomers were entering the housing market in the 1980s, mortgage rates were extremely high, peaking at roughly 18% as Federal Reserve Chair Paul Volcker attempted to lower inflation, which was raging at 14%. But boomers have had by now many years to refinance their mortgages as rates fell, and they did just that, leaving the vast majority of them with mortgage rates below the current market rate.

In a replay of sorts of the 1980s, inflation hit a four-decade high in June of last year, and the Federal Reserve has since raised interest rates several times as Chair Jerome Powell has adopted a Volckerian strategy. With that, mortgage rates that were hovering around 3% throughout the pandemic-driven housing boom skyrocketed, reaching 8%, a more than two-decade high. Currently, the 30-year fixed rate is just below 8%. This means, BofA notes, that as before mortgage rates escalated, many homeowners locked in low rates—just not millennials. 

“Everyone locked in 3% mortgage rates, except millennials,” the bank said. “On the cost side, most boomers locked in low mortgage rates, where the effective mortgage rate remains below pre-COVID levels. The only group that took out mortgage debt meaningfully since 2021 is millennials, seeing a 20% jump.”

Nearly all outstanding borrowers have below-market mortgage rates, fueling the so-called lock-in effect or the golden handcuffs of mortgage rates. To put it simply, would-be sellers aren’t selling, in fear of losing their low rate. That’s putting a strain on supply, which is already tight given the housing market is underbuilt. With that, existing-home sales have already fallen to their lowest level since 2010, by one measure, and could fall further to their lowest level since the early 1990s, according to a separate forecast. 

Rates of homeownership and affordability are down significantly

So, consider this: A mortgage rate shock, limited supply, and home prices that rose substantially during the pandemic-driven housing boom have all left millennials in likely the worst position than any other generation so far. 

For one, homeownership is much lower for younger generations. Those under 35 make up less than 40% of homeownership by age group; those 35 to 44 make up over 60%; those 55 to 64 make up over 70%; and those older than 65 make up slightly below 80%. 

Additionally, affordability has decreased significantly since 2021, Bank of America said, citing the National Association of Realtors’ affordability index. It’s clear that the jump in mortgage rates in such a short period of time coupled with home prices that are still high, and in some markets are continuing to rise, has deteriorated affordability to levels worse than at the height of the housing bubble.  

Boomers are either not as impacted—or they’re thriving

“Boomers have certainly not felt the impact of higher rates as much, and we believe many wealthy boomers are actually benefiting,” the bank wrote. 

They’re definitely spending. Bank of America’s data, strategists wrote, show that boomers and traditionalists (also known as the Silent Generation) are the only groups that are increasing their consumption; they also make up 40% of total consumer spending. 

“Boomers typically spend less on big-ticket items (housing and autos), but spend more on health care, home improvement, and slightly more on entertainment,” Bank of America said. “As ultra-low rate mortgages incentivize people to live in their homes longer, we could see increased home-improvement spending by wealthy boomers.”

Meanwhile, younger generations are bearing the brunt of higher interest rates, given their spending has fallen and their credit card delinquency has risen, the note read. Younger millennials, ages 30 to 39, are the only group with higher credit card delinquency today versus pre-pandemic levels. Still, millennials as a whole are spending more on housing—potentially because of increased housing costs, although we could be in the midst of the next great wealth transfer.  

“Housing could struggle given higher rates, but the wealth transfer from boomers to millennials is supportive, especially for luxury housing,” the bank said.