Fifty-two percent of non-home owning millennials aren’t saving for a down payment. And of these, many cite underpaying jobs or joblessness as the reason.
In this piece outlining some of our research on U.S. millennials and their quest to become homeowners, I’d like to provide an overview of the larger macroeconomic issues that have informed their experiences and attitudes. Their income, and in particular long-entrenched wage stagnation, has contributed to their lack of ability to make the decisive step into real property ownership. In short, wages have only hesitantly inched forward while house prices have made stratospheric leaps.
For this study, we surveyed only millennials who were not yet homeowners. Given our findings apply only to the non-property owning cohort of this generation, this could mean that the population we studied is not as affluent as their homeowning generational cohort. But even with that qualification, we’re still looking at a significant majority — according to a 2021 study, only 43 percent of millennials were homeowners, the lowest home ownership rate of any generation and well below the overall average of 65 percent.
Locked out of the housing market, millennials are stymied by wage stagnation and sky high prices.
For more than four decades, wage stagnation has been a persistent reality in the United States, and wages have not kept up with the cost of living. According to 2019 research by the Economic Policy Institute, the federal minimum wage was worth 17 percent less than it had been 10 years prior, and 31 percent less than in 1968. If minimum wage had kept pace with productivity since 1968, it would now be $24 an hour. Indeed, in May 2021, Bank of America announced that by 2025, its minimum wage would be up to $25 an hour. While that’s heading in the right direction, it is still doubtful that the increase would bring workers in line with the galloping cost of housing.
House Prices Continue To Spike
Let’s quantify how rising home prices are outstripping wage increases. Looking at the runaway escalation of U.S. housing prices, the most recent report from S&P CoreLogic Case-Shiller found that home prices in October were up 19.5 percent year-over-year, almost matching July’s 19.7 percent spike, the biggest leap in over 30 years. Since 2012, incomes among millennials have risen 24 percent, while house prices rocketed off at 86 percent, and are still rising. Little surprise that within our own research, 56 percent of millennials stated that home ownership where they currently live, is “hard” or “extremely hard” to afford. One of our survey respondents offered this comment:
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“It’s tough given the cost of living increases compared to the wage increases. I personally cannot save very much money because about 60 to 70 percent of my income goes toward rent and other bills.”
Common sense suggests that this number should be inverted. Students know from personal finance courses that they should spend no more than 30 percent of their income on housing and essential living expenses. Our research showed that 66 percent of full-time workers, and overall 80 percent of our respondents reported incomes of below $60,000 per annum. With millennials making, on average, $47,034 per year as of March 2020, this would mean a combined mortgage, insurance and property tax payment of no more than $1,175. In today’s housing market—and this would be on the assumption that the home buyer had a 20 percent down payment saved—the average millennial in the $47,000 range might be able to qualify for a house priced around $220,000.
But with the pandemic causing vast exurban migration, the average home price has risen even more sharply over the past two years. As of May 2021, millennials faced a typical home price of $287,148—up a record 13.2 percent from the year before. Pandemic competition for homes even in smaller towns like Bethlehem, PA have created a surge in prices.
And Wages Have Stagnated
Among survey respondents who stated they aren’t saving for a down payment, many cited underpaying jobs or joblessness as the reason. The latest economic data shows that wages are rising only in fits and starts: the November 2021 jobs report data showed hourly earnings up 0.3 percent month over month, the smallest increase in average hourly earnings since last March. By contrast, November’s CPI (Consumer Price Index) showed that the price of goods was up 0.8 percent monthly and a dramatic 6.8 percent year over year. November is just one snapshot amid a continuing story of wages not keeping up with everyday costs. As we’re seeing, rising home prices are by far outstripping wage increases.
One millennial commented:
“Stagnating wage growth and larger student loan debt have made home ownership out of reach for many people in my generation, particularly those living in HCOL [high cost of living] areas. I would love to own a home, but I don’t realistically see how that would be possible where my husband and I currently live—and we work in tech and make decent salaries!”
Sadly, this survey respondent’s salary represented the exception, not the rule. Additionally, there is a deep underemployment problem. When we ran our survey, it showed only 48 percent of mid-age millennials (30 to 35 years old) working full time; 13 percent of this group reported being unemployed, with another 7 percent temporarily unemployed between jobs. Among recent millennial college graduates, only half of those we surveyed managed to find a role matching their skills and education immediately upon graduation. One in five (19 percent) somehow worked their way up to a graduate level role, and 28 percent were still looking.
Our overall employment data, encompassing those working full and part-time across all millennial age groups, is only 63 percent, with 51 percent working full time. It’s little wonder that 50 percent of the millennials we surveyed have less than $2,000 in savings, and half of those (25 percent) have less than $100 in reserve. The picture becomes sharper when we see that more than one third (34 percent) of Junior Millennials we studied and a quarter (26 percent) of Mature Millennials earn under $20,000—likely a combined effect of both underemployment and underpay.
Our research showed nearly half of fully employed Mid Age and Mature Millennials—employees approaching their prime earning years—making less than $50,000 a year. A quarter of Junior Millennials (25 to 29 years old) doing full-time work earn less than $30,000 a year. Only 30 percent of Junior Millennials earn over $50,000, and $100,000 is a great rarity—only one in 20 Junior Millennials and one in 10 Mature Millennials in the population we surveyed reported having this income level.
Looking at the overall picture, including the unaffordability of housing in large urban areas, it would be hard to make the argument that millennials we surveyed are making a living wage—which, as of 2020, was calculated at $68,808 a year. Across our three sub-groups, those who could possibly afford to buy a house—we’re conservatively estimating that at salaries of $50,000 or above—is only 47 percent. Wage stagnation has clearly impacted younger generations’ ability to grow wealth—beginning with amassing enough of a nest egg to get onto the housing ladder.
In the next article, I’ll address what has become a sort of elephant in the room: the millennial opinion that older generations, and Baby Boomers in particular, are getting in the way of their dream of buying an affordable home.
