It's an understatement to say that many plans in 2020 were sidelined because of the pandemic. For many, homeownership was put on the back burner amid sickness, job loss, homeschooling, and a host of other concerns. But for a growing number of millennials, the dream of homeownership has fizzled out completely, according to new data.
According to Apartment List's 2021 Millennial Homeownership Report, 18% of millennials believe they will always be tenants. This marks a big jump from last year, when 12% said they would continue to sign leases.
The generation gap in homeownership
Millennials lag behind the older generations in homeownership. Currently, 42% of millennials own homes at age 30, whereas 48% of Generation X and 51% of baby boomers were homeowners at the same age.
The data shows millennials are not on track to close the generational gap, either. Although this generation does represent a larger number of home purchases each year -- growing from 34% in 2017 to 38% in 2020 -- it still doesn't reflect the buying done before the Great Recession. Then, more than 50% of home purchases were by newbie homeowners. In the past three years, first-time homebuyers represent only 31% to 33% of home purchases.
What's keeping millennials as renters?
It's not surprising that the high price of homeownership is what keeps 74% of millennials who say they'll always rent signing those rental leases. Around 34% of these prefer to stay as tenants because they prefer the flexibility renting provides them, while 32% say they don't want to deal with maintenance tasks or costs. And 21% of millennials believe buying a home is too risky an investment. This is bad news for fix-and-flip investors but very good for rental investors, who could bank on having millennials as long-term tenants.
For the 80%-plus of millennials who might still have ownership on the horizon, here's what's keeping them from laying down that new welcome mat just yet:
- 63% don't have any money set aside for a down payment.
- Only 15% have $10,000 or more in savings for a deposit on a house.
- 40% say COVID-19 put a damper on homebuying plans; 21% say they have had a loss in income or have had to dip into savings during the pandemic.
Around 20% of millennials say that they will be getting help from their parents with the down payment for a home, an illustration of how the wealth and assets of one generation might affect the next.
Racial disparity in homeownership
Wealth inequality is also reflected in the lower rates of owning a home among millennials. White millennials have been able to tighten the generational gap in regards to homeownership, and they're buying properties at a much higher rate than non-white millennials. Among Hispanic and Asian millennials, there is not much of a generational gap, but homeownership as a whole is well behind white millennials.
For Black Americans, however, the rate of home ownership is well behind the other three groups and has the largest generational gap. For white millennials age 30, the homeownership rate is 51%, as opposed to 20% for Black millennials.
The pandemic changed everything
There's another reason aside from finances that have caused some millennials to press pause on homeownership: Their housing preferences have changed because of the pandemic.
As we've already seen people flee the cities for more space in the suburbs and rural areas, millennials are taking stock of what matters most to them with housing, including price, amenities, and location. 28% of millennials are thinking twice about the type of home they want to live in, and 27% are reconsidering location. After all, many companies have allowed employees to continue working remotely, which opens homebuyers up to much more leeway with location.
The bottom line
Homeownership is a pricey endeavor that has given many pause during the pandemic, particularly millennials. While this is mostly due to a lack of finances, there are some who will continue to rent for the amenities and flexibility they have as tenants. So rental investors would be wise to offer amenities and features that cater to this generation in order to attract long-term tenants.