The bottom line is that, by 2022, millennials had a similar homeownership rate as baby boomers did at their age. They were less likely to own a home than Gen Xers at their age, but Gen X also reached their first-home buying age during the start of the housing bubble.
Millennials who bought homes will benefit from these low rates for years to come. Most outstanding mortgages are fixed rate, and 62% of mortgages have interest rates of less than 4%. Some 88% of millennial homeowners have a mortgage, compared to 48% of boomers, who are more likely to have paid off their (more expensive) loan.
This is good news is that just as the millennials are entering middle age, they’ve locked in cheap housing. The outlook is not so good for Gen Z. The low rates that facilitated all that home buying were the result of both market forces and Federal Reserve policy. Now that interest rates have increased and the Fed is no longer buying up mortgage-backed securities, mortgage rates are multiples higher. Unless there is more intervention, it is unlikely that sub-3% mortgages rates are coming back.
Higher rates might normally mean cheaper homes. But because rates were so low for so many years and then increased so quickly, many homeowners—including millennials—locked in low rates and now won’t move. This will restrict supply and keep prices high. As Gen Z looks to buy their starter homes in the next few years, they will face both high rates and high prices. It may be years before the housing market is affordable again.
This could create even more intergenerational conflict between cheap-mortgage-paying millennials and high-rent-paying Gen Zers. I look forward to the TikTok videos.
Allison Schrager is a Bloomberg Opinion columnist covering economics. A senior fellow at the Manhattan Institute, she is author of An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.