Unraveling 5 Factors Preventing Young People from Buying Homes
The dream of owning a home has long been considered a cornerstone of the American Dream. However, for many young individuals today, this aspiration feels increasingly elusive. Many economic and societal factors have converged, making homeownership an outright challenge for the younger generation.
From overpriced housing to the soaring cost of education, stagnant wages, and the burgeoning presence of institutional investors in the real estate market, several forces stand in the way of young people taking that monumental step toward buying a home. Below, we’ll explore the top five.
Overpriced Housing Market
One of the most significant hurdles young people face is the staggering rise in housing prices. Housing costs have skyrocketed in many metropolitan areas and desirable locales, outpacing income growth. In September 2023, the U.S. median home price was $412,000. And since 2000, the median home prices in the U.S. have increased by nearly 160 percent.
This price surge is partly fueled by a lack of housing supply to meet the growing demand. The aftermath of the 2008 financial crisis saw a decrease in housing construction, exacerbating the shortage of available homes, particularly in urban areas where employment opportunities abound.
Cost of Education and Student Debt
Another substantial roadblock for young individuals aiming to buy a home is the weight of student loan debt. The ever-increasing cost of higher education has burdened graduates with massive debts that hinder their ability to save for a down payment. Between 1980 and 2020, the average price for tuition, fees, and room and board for an undergraduate degree increased 169 percent, according to a recent report from the Georgetown University Center on Education and the Workforce.
Many young people struggle with loan repayments, making it challenging to allocate funds toward homeownership.
Stagnant Wages Amid Rising Expenses
While living expenses continue to surge, wage growth has remained largely stagnant for several decades. For more than four decades, wage stagnation has been a persistent reality in the U.S., and wages have not kept up with the cost of living. According to 2019 research by the Economic Policy Institute, the federal minimum wage was worth 17 percent less than it had been 10 years prior and 31 percent less than in 1968. If the minimum wage had kept pace with productivity since 1968, it would now be $24 an hour. Instead, the federal minimum wage remains a paltry $7.25 an hour.
Young professionals contend with balancing increased living costs—from healthcare to groceries—while their income struggles to keep pace. This financial strain leaves little room for saving for a down payment or covering the ongoing costs of homeownership.
Demand Outweighing Supply
The classic economic principle of supply and demand plays a crucial role in the housing market. The demand for homes, particularly in sought-after urban areas, significantly surpasses the available supply.
The housing shortage is not news to anyone who has tried to buy a new home recently. According to the National Association of Realtors (NAR), the supply of houses for sale in the U.S. — typically measured in months of housing supply — reached a record low of just 1.6 months in January 2022. That number has grown since, but the supply is still not nearly enough to meet the demand. This scenario leads to bidding wars and inflated prices, placing homeownership further out of reach for many young individuals.
Influence of Institutional Investors in Real Estate
The landscape of homeownership has been further complicated by the growing presence of institutional investors, who buy up a large portion of housing inventory for profit. Armed with substantial financial resources, these entities have been acquiring single-family homes in bulk. CNBC reports that institutional investors may control 40 percent or 7.6 million U.S. single-family rental homes by 2030.
This trend reduces the inventory of homes available for individual buyers and often drives up prices, creating an additional barrier for young people seeking a home.
Collectively, these factors form a complex web that makes it significantly more difficult for young people to achieve homeownership. The dream of having a place to call their own, build equity, and secure stability feels more like a distant goal than an attainable reality.
Owning a home has traditionally symbolized stability and achievement. However, for young individuals today, the path to homeownership is strewn with obstacles. Overpriced housing, soaring education costs, stagnant wages, supply-demand imbalances, and the encroachment of institutional investors firms collectively contribute to this formidable challenge. Efforts to address these issues require collaboration between policymakers, industry stakeholders, and the community to pave the way for a more accessible and inclusive housing market, ensuring that the dream of homeownership remains within reach for future generations.
Nestment, Inc. does not guarantee and is in no way responsible for the accuracy of the information provided in this blog post. All information is provided “AS IS” and with all faults. Data presented here may not reflect all real estate activity in the market. While the information on this site is about legal and tax issues, it is not intended as legal or tax advice or as a substitute for the particularized advice of your own attorney and tax professional.
