Millennials priced out of homeownership are feeling the pressure

Millennials priced out of homeownership are feeling the pressure

“Start Here” takes a look at the factors behind the ongoing housing crisis.

ByBrad Mielke, Jen Newman, and Ivan Pereira

November 24, 2023, 6:12 AM

This month, ABC's daily podcast “Start Here” is examining how a turbulent real estate market is upending many American communities. In part one of the “Priced Out” series, we take a look at how it's impacted a basic American dream: homebuying.

Over the last couple of months, Dylan Rose has taken some exciting news steps.

Rose recently got married. He moved to Beacon, New York, outside of New York City, for his wife's job. They make a combined income of $200,000.

But when it came to his dream of buying their first house, the 29-year-old told ABC News' “Start Here” came to a sudden realization: they were priced out.

Start Here Series GraphicABC News

In fact, mortgage payments on a home would be nearly $4,000 a month, roughly $1,000 more than what Rose and his wife would pay for rent.

“Just that gap between renting and then owning, not even a big house, just kind of a starter house, it's like it's not even possible for us,” Rose said. “Not now or probably not any time soon.”

Rose's situation is not unusual. Experts say first-time millennial prospective homebuyers are facing a major crisis stirred by a perfect storm of rising housing prices, interest rates and tougher competition from several generations of buyers.

The U.S. is currently short roughly 3.8 million units of housing, both for sale and for rent, according to Freddie Mac, the government sponsored agency that provides funding for mortgages to smaller banks and lenders.

Bridgette Claro, a real estate agent in Cook County, Illinois, told “Start Here” that the housing supply was already short before the pandemic, and that COVID-19 further changed the way we live.

“A lot of people no longer needed to commute, so maybe they didn't need to be close to their job, but now all of a sudden they need a home office,” she said. “It also created this huge surge of housing needs.”

The last couple of years have seen a frenzy of competition for similar homes that has led to bidding wars and prices soaring, according to Claro.

“I'm seeing sellers get prices that they never imagined,” she said.

Around the country, some communities are reporting a crisis of affordability where residents are priced out of renting as well as buying.

On top of this perfect storm is the fact that prospective millennial buyers are competing with older generations, according to experts. This year, the average age of a homebuyer was 49 years old, according to data from the National Association of Realtors.

Two decades ago, it was 39.

Bob Wood, a professor of finance at the University of South Alabama, told “Start Here” that he is looking to downsize from his four-bedroom home to a two-bedroom, and he's likely to be seen as a better bidder with his built-up finances.

“With young people, especially that first starter house, they probably don't have a lot of credit,” he said. “And then they look for a house and they're hoping to pay $300,000 and they turn around and it's $500,000 and rates are higher than the payments, twice [as much] what they expected.

But even with that advantage, older prospective buyers who are looking for a new home are also hitting roadblocks, experts said.

An added layer that has raised prices even more, according to experts, is the fact that a lot of homeowners who are seeking to “move up” from their starter homes are facing the same struggles and are forced to stay put.

Homeowners who bought their “starter home” with low-interest mortgages a decade ago with lower interest rates now face the challenge of looking for a new home with rates that have jumped by as much as 5%, according to Claro.

Many of these buyers, who considered themselves upwardly-mobile, are realizing “that house we thought was our starter home…is our forever home,” she said.

Rose said he feels that frustration. While he and his wife consider themselves lucky to each make a good living, he said their lack of inherited wealth has virtually sidelined them from home ownership.

“Occasionally on social media, we'll see someone who just bought a house and you're like, 'Well, how do they pull that off and what are we doing wrong?'” he said. “So I think you kind of get this like imposter syndrome of 'what am I doing wrong?'”

Danielle Hale, the chief economist at Realtor.com, told “Start Here” she’s not hopeless about the situation.

Millennials and real estate experts describe why homeownership has become virtually impossible.Oscar Wong/Getty Images

Although she warned that interest rates won't be dropping anytime soon, she did say that more inventory will be built and rental costs will stay steady.

“Do you buy now? Do you wait? A lot of that's going to depend on your personal situation,” Hale said.

Hale added if one does plan on staying in their home awhile, it might indeed make sense to take the plunge and buy, because even if one is paying more in interest, they're building up equity, and perhaps can refinance later.

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