Rising interest rates, coupled with an already tight and competitive market, are impacting purchasing power of would-be homebuyers. Consequently, the housing market is starting to see a shift in who is buying homes — especially in the millennial age group.
Millennials are now the largest generation of potential homebuyers, but this age group is becoming more pessimistic that they will ever own a home. According to a recent survey from Apartment List, about one in four millennials who currently rent have given up trying to become homeowners. In 2018, only 13% of millennials expressed this sentiment.
Three-quarters of this group note that their decision to rent indefinitely is largely a financial one and report that high home prices and securing money for a down payment are the biggest hurdles to becoming homeowners.
However, overall, millennials want to own a home. According to a report from Bankrate, nearly 74% of millennials surveyed consider owning a home to be a high life achievement, but in the current market, owning a home is not plausible for many would-be buyers.
Consequently, the market is starting to notice this shift. According to the National Association of REALTORS®, first-time homebuyers accounted for 29% of home sales nationwide in July 2022. This is down slightly from the same time last year.
Millennials choosing to enter the housing market are also confronted with increased competition for homes at certain price levels. Rising cost of living and increasing interest rates are severely impacting how much buyers of all segments can afford, which is consequently putting additional pressure on the market for homes at lower price points.
According to Zillow, monthly mortgage payments are now 75% higher than they were in June 2019.
“Buyers are stretched thin when it comes to affordability, and they are flocking to the lowest-priced homes on the market to get their foot in the door,” said Nicole Bachaud, senior economist with Zillow.