Many different factors have contributed to making it difficult for millennials to get their feet on the property ladder. Let’s take a closer look at how they have been somewhat cheated out of owning homes.
The affordability gap between property values and income levels is continuing to rise. That means many millennials cannot meet the general rule of their mortgage payments not exceeding 25% of the homeowner’s monthly income. While the economy at large drives mortgage interest rates, other factors like a person’s credit score and their debt-to-interest ratio will also affect millennials’ mortgage rates. However, it’s still possible to get a lower mortgage rate. Find out how various lenders differ by comparing their interest rates on Moneywise.com.
High Student Debt Levels
Student debt in the US has been rising for some time, and at the beginning of 2020, it reached almost $1.6 trillion. When the increased debt is seen alongside millennials experiencing stingy wages in much of the job market, it means it’s becoming increasingly difficult for millennial graduates to earn enough to pay off the student debt let alone buy a property.
According to a report by NAR, over 50% of home buyers under the age of thirty-six said student debt was the reason why they are having to delay buying homes. A study by Apartment List makes things even clearer. It found that college graduates without any student debt needed around seven and a half years on average to save a 20% down payment, whereas those with debt needed more than an additional four years.
The 2008 Housing Market Collapse Disproportionately Affected Black and Hispanic Millennials
The housing market collapse of 2008 can still be felt today, and the knock-on effects from that economic slump are affecting today’s millennials to get a foot on the property ladder. But even more concerning is the fact that black and Hispanic Americans are particularly left out. In 2008, families of color lost around $200 billion due to the housing crash and the mass foreclosures that followed. Property gains from the 1990s and 2000s have been completely wiped out, and black and Hispanic people are today denied mortgages at twice the rate of white people.
Furthermore, today, white millennials are three times more likely to own a home compared to black millennials. In fact, according to New America, black millennials are less likely to own homes today than African Americans who were the same age in the 1960s. If more attention had been given to black Americans and other people of color after the housing collapse of 2008, black and Hispanic millennials would not be so disproportionately affected today.
Tighter Lending Standards
The majority of millennials started their careers during the financial crisis when the economy and labor market were fragile, meaning it has been difficult for millennials to accumulate enough for a down payment. But banks made it even harder for millennials to get a mortgage when they tightened credit underwriting to reduce risk and double-downed on the 20% down payment rule.
Even if millennials can find mortgages that require less than the now-standard 20% down payment, lenders will typically charge higher interest rates on the loans. Banks’ tighten lending standards have also resulted in millennials needing to take out private mortgage insurance, which creates even greater monthly payments.