It is ludicrous to assert that people in my generation are able to easily buy a house in their 20s, much less straight out of college. If I, someone with all the luck and privilege in the world, could only manage to buy a house in my 30s by stretching my finances to their thinnest, how is the average person in my generation supposed to buy a house for themselves in their 20s? How are they supposed to do it while supporting a family and children? How are they supposed to do it while paying off massive student debt and working a minimum-wage job?
First, let’s take a step back and talk about my story, because everyone’s personal story affects their perspective. I’m a 30-year-old millennial. I graduated with zero student debt, because my parents were upper middle class and paid my tuition costs alongside generous waivers granted by the University (my mom was a state employee and my dad was a veteran). This also allowed me to earn a Master’s degree debt-free before ever entering the workforce.
I work in one of the highest-paying industries in the country (Tech) for one of the most successful companies in my industry (Amazon). I have gotten over 1/3 of my net worth from a trust fund set up by my grandfather, who was a successful Realtor. I have a near-perfect credit score. This isn’t a humble brag; I’m lucky to be where I am in life. Even with all of this relative privilege and financial success, I was not able to buy a house in my 20s.
I’m buying a house this year, finally, and I’m doing so for more money that I have ever had in my entire life, including my current retirement savings. I am barely able to cover my monthly mortgage payments on this new house and still afford my other normal life expenses. I don’t say this to complain; I’m relatively happy with my life, and I don’t have a lot of concerns when it comes to finances.
Caveat: I might have been able to buy a house already if I had continued to live in a part of the country where both housing prices and salaries are severely depressed compared to where I am now (one of the most expensive and highest-paying areas of the country). My first job was in one of the cheapest cities to live in the US (St. Louis), where houses cost ~¼ as much as they do where I’m living now. However, my income was 1/5th of what I’m making now, so even accounting for salary growth over time, this only would have been possible because of the trust fund from my family AND my complete lack of any form of debt.
I’m not married. I don’t have kids. I don’t have any debt whatsoever. I’m not the majority, however. In fact, I’m extremely lucky to be in the top 1% of my age group, financially. If you read this post and can’t relate to my situation, you’re not alone. You might say I’m a statistical anomaly, but I’m also the result of generations of privilege and systematic oppression. I didn’t earn this place in the world, the world gave it to me. Most of my generation will never have the advantages and opportunities that I had.
Let’s Talk About Statistics
At the end of the day, this is just another anecdote. Your anecdote does not invalidate my anecdote, nor does mine yours. You may know someone who has achieved the “American Dream”, or maybe you’re even one of the “lucky” few yourself. Hell, you might even think that I’m “out of touch” because of my financial situation or because I live in one of the most ludicrous parts of the country when it comes to housing and employment. However, statistics don’t lie, and the current situation is bleak (to say the least) for the typical young person. The share of first-time home buyers in the housing market dropped near an all-time low in 2015, and the median age for that group is now 32, several years higher than what it was for older generations. The average Millennial makes 20% less than Baby Boomers did at the same age, after adjusting for inflation. Many of their costs, however, have far outstripped the rate of inflation.
Source: Business Insider - “Here’s How Much Millennials Are Earning Annually Across The US”
According to the US Census Bureau, median wages for the 25-34 age group have risen 14% from 1970 to 2016, after adjusting for inflation. However, another inflation-adjusted comparison shows that median housing prices rose over 100% from 1970 to 2006, the most recent year that data is available from the same source. Home prices dropped after the recession in 2007, but they recovered and exceeded those highs by 2016. Adjusting for inflation at 2016 prices, growth is still over 100% in that time period. Can anyone honestly say that 14% wage growth is sufficient to cover that gap?
While Millennials struggle to earn enough money to buy a home, older generations are increasingly unlikely to sell their current homes. This keeps inventory low and contributes to meteoric rises in housing prices. In 2016, home ownership was at its lowest in 50 years, and 37% of all homes were purchased for investment purposes. Rich people are buying homes to rent to people that can’t afford them, which in turn is driving up prices and lowering available inventory. That trend contributes to a vicious cycle that continues to drive down home ownership rates.
Source: Robert Shiller - “Irrational Exuberance”
Millennials Are Losing Money
Without even accounting for student debt, the average millennial’s income is lower than their cost of living. That makes it difficult to save money to pay back their debt, much less accumulate enough assets to purchase a home for themselves. Some people would like you to believe that they pulled themselves up by the bootstraps, earned everything they ever got for themselves and were able purchase their own home at a young age. Some of those people are even millennials. The fact remains, however, that most people in our generation don’t have the opportunity to accomplish this, no matter how hard they try and how good they are at their jobs.
One might think to themselves, “If people are married, they can combine their incomes to buy a house. Why wouldn’t that work?” Let’s unwrap those assumptions for a second. First, that’s assuming that both people in a relationship make equivalent wages, or at least that one of them is above average to offset the other. Second, that someone is married at all in the first place. Third, that people who don’t fit the first two assumptions aren’t worthy of owning their own home unless they far outstrip their peers in terms of annual income and existing debt. None of these assumptions hold up under scrutiny, and they certainly don’t match up with how Americans have historically afforded their own homes.
Let’s Do The Hard Math
The median millennial income in Q3 2017 was ~$40,000, as we saw previously. The median home price at the same time was $320,500. A standard 20% downpayment on that home would be $64,100. Mortgage rates (30 yr fixed) were near all-time lows at ~3.9%, making the median monthly payment ~$1,209.36. That means $14,512.32/year in mortgage payments, plus insurance and property taxes. Standard advice says around 28% of your income should go toward these costs, which for the median millennial salary would be $11,200. That’s SIGNIFICANTLY less than what you would have to spend to own a house, and that’s not even accounting for how you managed to save the $64,000 required for a down payment.
Now, you could argue that young people shouldn’t be able to buy the median home, but how much home can they even afford? The median property tax in the US is around 1.15%, and the average cost of homeowner’s insurance is $300-$1000. Let’s say $650 to be generous and take the middle point. So already that $11,200 is down to $10,550. If you buy a $185,000 home, you pay $2,127.50 in property taxes on average, and your mortgage payment could be $698.07/mo, which comes to $10,504.34/year after taxes. So the median millennial can only afford a house that is 43% BELOW the median house price. There’s no way that adds up, because it means people below the median can’t even afford close to that amount!
The Whole Picture
Keep in mind that everything I’ve discussed above is talking about the “average American”. I haven’t even delved into income and opportunity disparities by gender, race, or education. In fact, that topic is so large that there’s no way I could do it justice in this post. However, I would be remiss if I didn’t mention it altogether, because American inequality is only getting worse over time. This means that while things look bad for the median millennial, they’re even worse on average for someone who belongs to one or more disadvantaged socio-economic groups.
The entire premise of “everyone should be able to buy a house and support a family in their early 20s” espoused by older generations is complete bullshit. Without higher-density housing, wage increases, student debt forgiveness, and affordable higher education, future generations will have it even worse than we do today. We must tackle these problems today to have even a hope of giving them a better America years from now. Otherwise, the American Dream is dead.