Should seniors take the rap for the gap in homeownership by millennials?
Are senior homeowners preventing millennials from buying houses? Could the decisions of millions of older owners to “age in place” rather than sell their homes explain why millennials are lagging behind in homeownership?
A provocative new study from federally chartered mortgage investor Freddie Mac suggests the answer may be yes. “Who is living in those homes that millennials might otherwise have bought?” ask the study’s authors. Their answer: baby boomers, war babies and people born in the 1930s. By hunkering down longer than would have been typical of earlier generations — who would have sold their homes in greater numbers by now — today’s seniors are effectively denying their houses to the real estate market. As a result, according to the study, roughly 1.6 million homes have been kept out of buyers’ reach in recent years, sharply reducing the availability of houses nationwide that millennials could buy.
“The most important fundamental in today’s housing market is the lack of houses for sale,” says the Freddie Mac study, which was conducted by the company’s economic and housing research group.
Does all this sound right? There’s no question that tight inventories exert upward price pressure on properties that are available, and they make it tougher for many buyers to afford homeownership. And there’s no question that millennials haven’t opted for ownership at rates comparable to earlier generations. When the Urban Institute’s Housing Finance Policy Center studied the matter last summer, it estimated that 3.4 million millennials are missing from the ranks of homeownership, based on the behaviors of boomers (born between 1946 — 1964) and gen X-ers (born between 1965-1980). Millennials are 8 percentage points behind earlier generations at the same age.
But should seniors take the rap for the gap? Previous studies of millennial homebuying have pointed to multiple causes for differences in ownership rates. Last month, the Federal Reserve identified ballooning student-loan debt loads — now an estimated $1.5 trillion nationwide — as a key barrier to millennial home purchasing. It estimated that 20 percent of the decline in ownership among young adults since 2005 can be attributed to student debt, which doubled in real terms during the decade ending in 2015.
Last year’s study by the Urban Institute highlighted other important factors in addition to student debt:
— High rents that many millennials pay, which make it more difficult to save for a down payment.
— Later ages for marriage and child-bearing, thereby postponing key traditional inflection points that stimulate homebuying.
— Locational choices by millennials themselves, who often show a lifestyle preference for higher-cost urban centers.
In an interview, Edward Golding, a nonresident fellow at the Urban Institute, also noted that there are financial constraints on senior owners beyond simply wanting to age in place and enjoy their homes. Some seniors choose not to sell because they don’t want to give up mortgages they have at favorable interest rates — the so-called “lock-in effect.”
Another factor the Freddie Mac study doesn’t mention: Homes owned for many years often are not what millennials are shopping for anyway — they’re too big and may have too many bedrooms, plus they might have interiors that require extensive updating. They’re frequently priced for move-up buyers, not first-timers. Yet the study includes an example in which fictional older owners, Al and Rose, aren’t selling, thereby forcing younger buyers, Alex and Rita, “to wait longer — and pay more.”
In an interview, Doug McManus, Freddie Mac’s director of financial research, conceded: “That’s a simplification.” So is the entire study. Millennials have lower homeownership rates for a complex of reasons — some of them financial, some of them simply reflective of changing personal preferences.
You can’t blame it all on the old folks.