It goes without saying that buying a house nowadays is not as easy as it used to be, and the main victims are often millennials. It’s not because they prefer living with their parents, or because they don’t consider buying homes a worthy investment. The reason is as simple as it gets: lack of affordability. They simply don’t have the financial comfort to become homeowners. Recent shifts in the market, however, have been changing the game in the favor of millennials. As a matter of fact, the same generation that couldn’t afford to own a home is now becoming the fastest growing group of buyers.
Why Has It Been Harder for Millennials to Buy Homes?
The skyrocketing prices of homes and mortgage rates aren’t the only reason millennial homeownership has been suffering. This lack of affordability can be traced back to several factors.
The Great Recession and the Housing Bubble of 2007
A housing bubble essentially takes place when high levels of demand lead to an increase in home prices. Investors in the early 2000s opted for non-stock investments while the Federal Reserve System reduced mortgage rates.
This resulted in huge demand for homes. It’s also worth mentioning that, due to limited regulations, one didn’t need to have significant credit or high income to obtain a mortgage. But the payments eventually caught up, and with higher interest rates. As expected, borrowers couldn’t pay up, resulting in the lenders going bankrupt. The collapse of the global banking system soon followed, leading to the Great Recession.
As such, homebuilding saw a massive slowdown and never really returned to normal levels — even after the economy started picking back up. Nevertheless, mortgage rates began decreasing again and homebuyers kept increasing, and when demand exceeds supply, prices start climbing — much to the dismay of millennials.