“Why don’t they just take out a loan, buy a home, and then pay it back?” one may ask upon hearing the challenges facing many millennials today with home ownership.
At first glance, it sounds easier said than done. It might even have been the trend in previous generations. That’s not the case today. There’s a reason why so many TV shows that are adored by millennials are about a bunch of 20 something year olds renting together in some big city. It is because the cycle of renting, instead of buying a home, is all too relatable to the modern youth.
According to the U.S. Census Bureau, homeownership fell to 62% in 2015, the lowest it had ever been in 5 decades, and economists predict that it will continue to decline. There are many factors as to why many millennials may be left without an opportunity to own a home (something that was considered standard for previous generations), but the main one is actually economic.
It’s not a secret that millennials are drowning in debt. In fact, the class of 2015 was the most indebted class in the history of the United States, with an average debt of $35,000. To put this into perspective, that is $1.2 trillion of national student debt, which is about how much we spent on the Iraq war up until 2013. That’s an 84% jump since the recession. It’s ironic, as millennials are the most educated generation, but that comes with a huge price.
College rates have always been increasing steadily throughout history, but the reality is college tuition rates have been spiking in recent memory thanks to the policies of a previous generation. The Baby Boomers go-to policy of slashing public funds led to cuts in staff, programs, and an increase in tuition which has essentially strangled the youth. This isn’t speculation. The Baby Boomers, the generation that grew up in the era of prosperity, are actually the reason why the youth has grown in an era of economic hardship and have had difficulties in higher education. (If you’re interested in further understanding how cuts in funding have impacted college tuition, I suggest taking a look at this Center on Budget Policy and Priorities article, “Years of Cuts Threaten To Put College Out Of Reach For More Students“, it will give a clearer understanding.)
We also need to remember that many millennials began entering the workforce during the recession. Research from the White House shows that those who enter the workforce during a recession suffer earning losses that last more than a decade, especially for college students. They earn 2.5% to 9% less than those who entered at a time of prosperity. Of course, this will make the prospect of paying off student debt even more difficult, regardless of whether or not the economy is recovering, because a recovering economy does not necessarily mean that the youth now have opportunities.
To be fair, rent prices are increasing dramatically, but that still hasn’t encouraged millennials to start buying homes. So, are millennials doomed to be renters? The hopeful answer is no, there may be a silver lining, but it’s too early to predict. There are other factors to consider, such as the creation of a new industry or changes in policies that could lead to economic growth and more homeownership. But as wisdom teaches us, we’ll have to wait and see because time will only tell.