Millennial buyers had an edge over boomers, but it was fleeting
You can’t always time the market, but timing made a huge difference in affordability for some millennial and boomer homebuyers, according to a Redfin analysis.
Key points:
- Older millennials who bought in 2020-2021, when mortgage rates sat at historic lows, had an advantage over both their peers who waited and baby boomers who bought in the early 1980s.
- That didn’t last long: Millennials who bought just a year or so later, after mortgage rates and home prices had spiked, had to spend a much larger share of income on housing.
- Baby boomers have seen their housing costs decline over the decades and now hold significant equity; it’s not clear if millennials will experience a similar trend if prices and rates remain elevated.
Baby boomer homeowners who remember the pain of double-digit mortgage rates in the 1980s may think that millennial buyers complaining about today's housing costs and rates are just making a big fuss.
But millennials who've been feeling the pinch have a point, according to a new Redfin analysis.
Although some millennials had a short-lived buying advantage during the pandemic compared to when boomers were buying their first homes, the tables have since turned. And while many real estate professionals say it's a fool's errand to try and time the market, buying during less-than-ideal market conditions has cost members of each generation a hefty sum.
Early-bird millennial buyers benefited
Older millennials who bought a home in their early 30s spent less of their income on housing than baby boomers did at that age due to historically low mortgage rates (sub-3% in 2021) and higher household incomes.
The typical older millennial household, by age 37, earned an average of $100,000, whereas boomer households typically earned around $88,000 in today's dollars at that age. That's due in part to the fact that many more households are dual income today, and 78% of women now work outside the home compared to about 60% in 1980.
A pandemic reversal
Millennials who waited to buy until 2022 were not so lucky, however. By the end of that year, mortgage rates, which began the year at just over 3%, topped 7% in November and have remained in the 6-7% range ever since. At the same time, those buyers faced home prices that, on a national basis, had risen 40% over the course of the pandemic.
Millennials who bought a home at age 40 had to spend significantly more of their income on housing costs — roughly 35% — compared to just 27% for their generational peers who bought at age 30. Meanwhile, many are also dealing with other unavoidable costs, like student loans and childcare expenses.
"Before the pandemic, younger generations actually had it easier than the ones before them," Redfin Head of Economics Chen Zhao said. "But then home prices surged during the pandemic homebuying frenzy and mortgage rates shot up, while incomes kept growing at a normal pace — and the advantage flipped. If you bought in 2020 or 2021, you're coming out ahead, but those years were the exception, not the rule."
Boomer buyers had it easier as they got older
Younger baby boomers, who were in their 20s in the 1980s, also faced a challenging homebuying environment, with the typical household spending more than 60% of its income on housing costs as a result of inflation and sky-high mortgage rates that topped 18% in 1981.
Economic factors soon resulted in more affordable homebuying conditions, however. The share of income spent on housing costs fell to about 40% by the time they reached their late 20s and to about 26% once they hit their late 30s. During this period, steadily declining mortgage rates spurred many to refinance, and once boomers were in their 40s and 50s, their housing costs were even lower.
Now, many baby boomers have built up significant home equity and are hesitant to give it up. A Redfin survey from May found that about 43% of millennials were unlikely to move soon because of high home prices, while 31% of baby boomers didn't want to move for the same reason.