Unexpected revelations about the generation that has the hardest time buying a first home in history

Which generation has the hardest time buying a house?

You could call them an unlucky generation. Just as they were entering the real estate market hoping to buy their first home, inflation was rising, mortgage rates were at an all-time high, and home prices were up more than 60% in four years.

Many people think this is what Generation Y is going through. But it’s what the Baby Boomers—those born between 1946 and 1964 during the post-World War II baby boom—faced.

It was the 1980s, when US mortgage rates exceeded 16% per year and average monthly loan payments relative to income rose to 34% after just one year.

This statistic comes from an analysis of historical home prices, incomes and mortgage rates by America's largest real estate platform Realtor .

Millennials (born between 1981 and 1996) often complain that the 2007 global financial crisis made it harder for them to buy a home. But the data shows that the Baby Boomer generation has faced even greater challenges.

Realtors analyzed historical data and said the Baby Boomer generation may have faced the toughest real estate market in history for first-time buyers. When this generation turned 20, the average mortgage payment as a percentage of household income was 33.2%.

Millennials, on the other hand, have been spared the burden of mortgages due to extremely low interest rates following the recession. The average mortgage is just 22.5% of a Millennial’s household income, compared to the 25.8% average for Gen X (those born between 1965 and 1980).

Of course, in every generation there are periods when leverage exceeds 30% of income, as has happened over the past two years in the US.

Baby Boomers (green) have the highest mortgage-to-income ratio (Chart: Realtor).

Millennials’ complaints aren’t unreasonable, said Hannah Jones, senior economic analyst at Realtor.com, who said the current housing market isn’t the most illiquid in history, but it is the worst in 40 years and severely undersupplied.

Today’s homebuyers face high prices, high mortgage rates, and a shortage of affordable housing, making buying a first home extremely difficult.

When Buying a Home Is No Longer the Best Option

Realtor data shows that home prices in the U.S. have consistently risen faster than inflation. This year’s median home price, adjusted for inflation using the consumer price index, was $227,737 for Baby Boomers, $279,843 for Gen Xers and $319,804 for Millennials.

Inflation-adjusted home prices have increased 18% for Baby Boomers compared to previous generations, 23% for Gen X and 14% for Gen Y.

But mortgage rates for Gen Y before 2022 are at historic lows.

Despite the price and interest advantages, it’s interesting to note that many millennials are not buying their first home at the same age as their parents. According to the National Association of Realtors, the median age of a first-home buyer will be 35 in 2023, up from 31 in 2013 and 29 in 1981.

The question is why Generation Y has it easier, why don't many people decide to buy a house early?

Many Gen Y people in the US buy their first home around the age of 35 (Photo: Realtor).

According to the Berkeley Economic Review , 45% of Baby Boomers were able to buy their first home between the ages of 25 and 34. As of 2019, research shows that only 37% of Millennials in the same age group owned homes.

For millennials, the ultra-low interest rates that came with turning 30 after the last recession created strong incentives not to buy a home, says Marquette University professor David Clark.

For them, this was the worst time of their lives, coming out of the recession, with a weak labor market and a large student loan debt. In addition, after the financial crisis of 2007, home prices in the US continued to fall until early 2012.

Therefore, the decision not to buy a house for Gen Y is considered a smart move.

Another economist, Ken H. Johnson, told Realtor that Gen Y is delaying home buying because it's not the most effective way to build wealth.

The associate dean of Florida Atlantic University’s business school believes that Gen Y is better at building wealth by investing in stocks, bonds, and other instruments than buying real estate and renting like previous generations. For them, access to the investment market has become easier than for their parents thanks to the development of financial technology.

In addition, Gen Y easily finds jobs that require frequent travel between cities and even countries. Therefore, they often choose to rent in places with the best promotion opportunities instead of buying a permanent home. Therefore, Ken H. Johnson believes that it is not surprising that the average age of first-time home buyers is increasing.

Source: https://dantri.com.vn/bat-dong-san/he-lo-bat-ngo-ve-the-he-kho-mua-duoc-can-nha-dau-tien-nhat-trong-lich-su-20240621162244257.htm