Authors: Virginia REALTORS® Content Writer/Editor Stephanie Flynn & Chief Economist Ryan Price
As housing prices skyrocket, inventory continues dropping, and debt rises, a large portion of the millennial generation is reaching out to their baby boomer parents in hopes of help with the down payment of their first home. For first-time home-buyer millennials, those that are currently age 25-34, the homeownership rate is roughly 38%, for Gen-X when they were 25-34 it was about 47%, and for baby boomers it was 45% (2019 ACS). Why is this the case today, and why was buying a home not as much of an issue 40 years ago?
Millennials had only 4.3% of U.S. wealth through the first half of 2020, according to data from the Federal Reserve. Though it makes sense for the baby boomer generation to control most of the country’s wealth at this time, the data also shows millennials have less money than boomers did at the same age. Middle-class income levels, where many millennials fall, is higher than it was 40 years ago, but purchasing power is about the same, leaving this group with high debt and increasing difficulty participating in the current housing market. To put it into perspective, “The $4.03-an-hour rate recorded in January 1973 had the same purchasing power that $23.68 would today” (Pew Research Center).
This is where many millennials are turning to their parents for help. With most millennial parents making up the generation with the country’s most wealth at this time, boomers are more often than not able to help with all or a portion of the down payment on their child’s home. In a survey of millennials by Legal & General, 35% of respondents said they would have had to delay home-buying plans had they not received help from their parents. This helps ease the burden of such a large sum of cash up front and allows the home buyer to keep up with the monthly mortgage, which often resembles what they would be paying in rent in today’s market.
Will this trend continue with more millennials and future generations, or will middle-class incomes level out and purchasing power return to where it was when prior generations were achieving the goal of homeownership? Continue to follow Virginia REALTORS® for more insights.