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Challenges Faced by Millennials in the Housing Market


The housing market has become increasingly difficult for millennials to navigate, with steep mortgage rates and high home prices posing significant challenges. However, a recent report from BofA suggests that older millennials may be encountering even greater obstacles compared to their younger counterparts.

BofA analysts acknowledged that the current housing market is placing significant pressure on millennials. However, they emphasized that not all millennials face identical challenges.

To afford a median-priced home valued at approximately $409,000, the typical household would need to earn an annual income of at least $110,000, according to Redfin. This is $31,226 more than the median income of the average American household.

High-interest rates exceeding 7% make homeownership even more unattainable for many potential buyers. BofA conducted an analysis using a proxy method, monitoring escrow payments from Bank of America customer accounts. The findings revealed a decline in home purchases, particularly among older millennials.

In this analysis, escrow payments were used as a proxy because potential homebuyers usually deposit an amount tied to the home’s value into an escrow account until the closing of the contract. Subsequently, these funds are applied to the down payment or closing costs.

Before the arrival of the COVID-19 pandemic, the number of older and younger millennial households (born between 1978 and 1988, and between 1989 and 1995, respectively) making escrow payments had been increasing at a faster rate than that of the baby boomer generation. In essence, BofA’s internal data indicated that more millennials were actively moving funds and actively exploring homeownership options as they reached their prime home-buying age in 2019.

The Impact of Rising Costs and Student Loan Debt on Older Millennials’ Ability to Buy Homes

According to Bank of America (BofA), the growth rate of escrow payments among older millennials, aged 35 to 45, has significantly decreased compared to other generations. As the pandemic started to fade away and mortgage rates surged in mid-2022, the number of older millennial households making escrow payments in October 2023 dropped by 2% compared to the previous year. Interestingly, the number of younger millennials making escrow payments exceeded that of their older counterparts.

This decline in escrow payments among older millennials can be attributed to various factors, primarily associated with rising costs and student-loan debt. BofA highlights that older millennials often face higher expenses, particularly when it comes to childcare. Over the last few years, average childcare costs have increased by more than 30%. For instance, the U.S. Department of Labor reported that in 2018, the median cost of care for one child ranged between $4,810 and $15,417, corresponding to approximately 8% to almost 20% of a household’s median income. Consequently, these mounting expenses may hamper older millennials’ ability to save money for purchasing a home.

Furthermore, student loans also pose a significant barrier for older millennials trying to enter the housing market. BofA refers to data from the U.S. Department of Education, which shows that people aged 35 to 49 held 40% of the $1.6 trillion in outstanding student-loan debt in the third quarter of 2023. On average, individuals in this age group carry about $43,000 in student-loan debt, as per Federal Student Aid data.

Lastly, BofA suggests that older millennials might have been more severely affected by the 2008 housing crisis compared to their younger counterparts. This financial setback may have further hindered their ability to attain homeownership.

In conclusion, the combination of rising costs, especially childcare expenses, and the burden of student-loan debt has made it more challenging for older millennials, aged 35 to 45, to purchase homes. While younger generations may have more flexibility in realizing their homeownership goals, older millennials continue to face significant financial obstacles resulting from the cumulative effects of various economic factors.

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