For millennials, the outlook on home ownership is bleak: Housing values keep rising and incomes just aren't keeping up.
But is the situation facing millennials, those ages 23 to 38, really worse than the housing environment that Gen X and baby boomers grew up in? To compare, HireAHelper analyzed U.S. Census Bureau data and isolated the years that each generation was entering independent adulthood in their 20s.
On average, millennials need to save 6.4 years' worth of their total annual pay to afford a down payment on a home. That's because today, the median home listing price in the U.S. is $289,000, according to Zillow. Newly constructed houses are even pricier: The median cost of a new home in the U.S. is about $312,800, according to data collected by the U.S. Census Bureau.
In comparison, the average Gen Xer and baby boomer needed to save about 5.6 years' worth of their overall income for a down payment, which means millennials need to put away about 15% more than previous generations to afford a home. That's because home values were lower and incomes have not increased as quickly for millennials as they had for previous generations.
The Great Recession also directly — and negatively — affected millennials' earnings, HireAHelper found. The average paycheck only has the same purchasing power it did 40 years ago, according to the Pew Research Center. And almost two-thirds of millennials say they're living paycheck to paycheck, according to Schwab's 2019 Modern Wealth report.
Yet while home prices may be higher now for millennials, rents are actually more affordable than they were for Gen-Xers or baby boomers. Today, millennials spend about 35.7% of their monthly incomes on rent, compared to boomers' rent-to-income ratio of 38.1%. Gen-Xers spent 35.9% of their paycheck on rent.
Renting may be more affordable for many millennials, but HireAHelper found that this type of housing also creates more instability. Millennials plan to move more frequently than Gen Xers or boomers, a survey from HireAHelper's parent company Porch found. On average, millennials move about every two years, compared to boomers who say they typically have moved every six years, according to survey respondents.
And for those who can afford it, experts say that home ownership is one of the best ways to build wealth. Homeowners have a median household net worth of $231,420, while renters have just $5,200, according to the Survey of Consumer Finances. In a report issued last year, the Urban Institute found that homeownership is more financially beneficial than renting because it creates equity and provides tax breaks that renting doesn't.
In the end, experts say that millennials should still strive to own their own home if possible. So if you're not saving yet, it may be time to start automating your savings so that you can have a slice of the American Dream when you're financially ready.
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