Prospective millennial home buyers are in worse shape than many feared, and it’s not just in their heads--it really is because of stiff competition from wealthy baby boomers, institutional buyers and private equity firms, all vying for the same shrinking inventory of smaller homes, according to a new study released today by Legal & General, a multinational financial services firm with $1.7 trillion under management.
The pandemic triggered a buying frenzy among all generations, but as baby boomers seek to “rightsize,” they are trouncing millennials (age 25 to 40), said the new study, U.S. Millennials and Home Ownership – A Distant Dream for Most.
“Just as the younger generation of home buyers is reaching the point in their lives when they want to buy a starter home, they are entering a market where, simultaneously, baby boomers are deciding to downsize, putting a strain on available housing stock,” the study reported.
Baby boomers have owned the majority of non-commercial real estate since 2001. They own 44% of homes, while Gen X owns an additional 31%, according to a Motley Fool study, and because they have time and cash flow that’s unavailable to the younger generations, they are able to pick up small, affordable houses as soon as they come on the market.
Only 43% of U.S. millennials are currently homeowners. This is the lowest homeownership rate of any generation and well below the overall average of 65%, the study found.
“The proportion of 30-year-old U.S. home buyers has gone down steadily with each passing generation—over half of baby boomers owned a home at 30, 48% of Gen Xers, and so far millennials are at the bottom with just 42%,” said the study's co-author, John Godfrey, Legal & General's corporate affairs director.
With longer life expectancies and better overall health than any generation in history, “boomers are not quite ready to give up on private homeownership—and with the horror stories about retirement homes and care facilities during the pandemic, this attitude becomes understandable,” he said.
Considering that homeownership is a fundamental way to build wealth, “it bodes poorly for millennials that affordable housing is becoming increasingly inaccessible to them. We should be meeting the demand by creating more opportunity, not less, for homeownership,” Godfrey added.
What makes matters worse is that private equity firms and institutional buyers are buying up significant swaths of smaller homes across the U.S.
“While millennials pin the blame on the older generations, a far less visible factor is the contingent of well-financed institutional buyers who have collectively taken a lot of stock off the market,” the study found.