TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1345021
58 | M REPORT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Millennial Homeownership Trails Older Generations When comparing generations, the gap between millennials and baby boomer homeowners at the same age is widening. M illennials may be the largest generation, but it looks more and more like they're going to own the smallest percentage of houses—at least from a generational standpoint. Apartment List's 2021 Millennial Homeownership Report takes a look at the phenomenon and the generation causing it. By the age of 30, 51% of baby boomers owned homes. At the same age, 48% of Gen Xers closed on real estate. But millennials are hovering at 42%, and that number is likely to drop even further. Each year, more and more millennials report that they have no plans to ever stop renting. In 2018, 11% never saw themselves as homeowners. In 2019, that number rose to 12%. In 2020, the percentage of millennials who never saw themselves buying a home jumped to 18%. The biggest roadblock is af- fordability, and the rise in real estate prices caused by COVID-19 didn't help. Even for the shrinking percentage of millennials with plans to buy a home, 63% of them report not having money for a down payment. At first glance, it would appear that millennial homeownership is on the rise—and it is—but it still lags far behind where previous generations were at the same stage of their lives. In the last three years, millennial's first-time purchasing percentage grew 2%, from 31% to 33%. However, after the Great Recession, over half of home purchases were by first-time buyers. That's a significant drop in a relatively short amount of time. Affordability and the percep- tion of affordability continue to hinder millennials from home- ownership. Although interest rates recently dropped to historic lows, down payments were and con- tinue to be a huge hurdle. In fact, 74% of millennials who said they'd never buy cited overall affordabil- ity as the reason, compared to 34% who prefer the flexibility of rent- ing and 32% who didn't want to deal with unforeseen maintenance and expenses. There's also a sizable percentage of millennials who view home- ownership as a financial risk that isn't worth it—that number is 21%. 'Pandemic-Related Forces' Shape Consumer Behavior Authors of a consumer study say historic declines in the relative cost of housing have fueled a decline in spending on essentials. A s a pandemic continues to prevent consum- ers from spending on vacations, entertainment, dining, and the like, more discre- tionary funds are going toward home improvements and the stock market. Members of The Confer- ence Board—a nonpartisan, non- profit research and insights think tank—expound on this and more of their findings in the U.S. Consumer Dynamics Report: Q 4 2020. The Q 4 survey confirmed that, overall, "pandemic-related forces" (more time at home, reduced op- portunities to spend, and enhanced fiscal support from the govern- ment) continue to shape consumer behavior in the United States. "The booms and busts of a few unlikely 'meme stocks' have grabbed recent headlines, but the rise of individual investors tells a broader story about spending hab- its during COVID-19," said Denise Dahlhoff, Senior Researcher at The Conference Board. "Trends like low interest rates and declining debt concerns—alongside below- normal spending on vacations and out-of-home entertainment due to pandemic restrictions—have left a portion of Americans with more disposable income and fewer ways to spend it." While consumer spending shrank in almost every category of the survey during the fourth quarter of last year, the share of Americans spending discretion- ary money on stocks and housing improvements rose. The authors say historic declines in the relative cost of housing have fueled a decline in spending on essentials. "In Q4 2020, the share of U.S. consumers' budget devoted to hous- ing costs fell to 18%, a record low and down −3.5 percentage points compared to Q2 2020. Plummeting rental rates in city centers, rent abatements and cuts, temporary rent, and mortgage non-payments, and historically low mortgage rates all drove this decline," the study showed. "With these housing savings, total spending on essential goods and services (including food/ beverage at home, routine transpor- tation, education, and medical) fell −4.1 percentage points in Q4 2020 compared to Q2. Consumers shifted their spending, in large part, to discretionary products (+3.8 percent- age points)." Not surprisingly, most respon- dents named the economy (26%), health (18%), or job security (9%) as their top concern for the upcom- ing months. Of note, the research- ers said, is that the focus of all three dropped in Q 4 from Q 3/Q2, the early months of the COVID-19 crisis.