Generations have grown up believing that the American Dream is to own a home, but is this still true for millennials and younger generations? As millennials come into their 30s and their prime spending years, they rightfully have become subject of great interest across all sectors of the economy. The way in which millennials consume content, socially interact, and buy products and services is going to dictate the way companies innovate and adjust their trajectories for decades to come.
So, with all of this influence over the economy and the future trajectory of the world’s biggest business, have millennial’s American Dream shifted, and are they buying houses?
Before we answer that question, let’s address some of the alarming stats facing millennials as they enter their peak spending years:
- Millennials are experiencing potentially their second recession in 12 years. While all generations older than millennials also experienced this, it goes without saying that millennials have gone through these trying events at very formative times when it comes to establishing a long-term financial independence strategy.
- Millennials graduating in 2018 held an average student debt of nearly $30,000.
- 58% of millennials don’t have $5,000 in their savings account.
- Today, only 51% of Americans have been married by age 30, overwhelming lower than the 90% of Americans under age 30 In 1962.
With those mounting challenges, many millennials now define their idea of personal financial success as being debt-free, not uber-wealthy. Having been through the great recession, millennials aren’t necessarily loading up their savings accounts (we suggest having 4-6 months of expenses in emergency savings), but are prioritizing their investment into retirement accounts like 401Ks and IRAs. Between the shift in a long-term financial focus and increases in debt (often due to student loan debt), first-time homebuying has risen to a record-high age of 33. This is up from 29 years old when recorded in 1981.
“The American Dream hasn’t changed, it just now comes with delayed gratification”
Personally, outside of wanting to live a healthy and happy life with my family, my two biggest priorities that will make my American Dream come true is to #retire50 and own a house. When looking at millennial financial habits and compared against housing patterns, I would argue that the American Dream hasn’t changed, it just now comes with delayed gratification. Think back to when you were young and stared at the gifts underneath the Christmas tree or Hanukkah menorah for days leading up to the holidays. Remember that sense of excitement in the lead-up to the big day and the subsequent release of endorphins and happiness when you finally got to open your gifts? That is essentially what the American Dream has become to millennials. We know we will own a home, but it is taking a lot of time, effort, and strategy to get us there.
Peculiar Shifts in Millennial Homebuying Habits
Two interesting findings stand out when you dig into millennial first-time homebuying patterns:
- Millennials Are Skipping Starter Homes
With millennials buying homes for the first time in their 30s, they often are more established in their careers and are likely garnering higher salaries. When you pair this with the additional time they are taking to save for a home, many are opting to forego a cheaper starter home and are instead investing in luxury homes as their initial home purchase. According to Bloomberg, Toll Brothers, the largest US luxury-home builder, said that “nearly a quarter of its 2017 sales were to those 35 or younger.” Clearly, millennials’ motto is “Go big, or go HOME…”
- Buying Vacation Homes Instead
For many millennials, whose work and social life necessitates living in an expensive city (i.e. San Francisco for us), owning a home is a pipe dream. In San Francisco, $1 million might get you a small apartment in the Tenderloin (and not the cool, hip part where all the tech companies have taken over). For these city-dwelling millennials, it actually makes more sense to rent in these expensive cities and look elsewhere to own. This is why many city-dwelling millennials are looking to the suburbs or vacation destinations to buy their first homes and begin building equity. Not only can this serve as a perfect escape from city life, but with services like AirBNB, it easily represents a secondary income stream.
It is clear that the American Dream has shifted, but not completely changed. Like a fat kid at an ice cream parlor (this is historically factual), I cannot wait for the day I own my first home and fulfill my American Dream!
So What Now?
As we look toward homeownership and making our American Dream a reality, it is important to start taking the necessary steps to ensure we are financially set up to purchase a home when the timing is right. We’ve developed a Beginner’s Guide to Homebuying to help you achieve your dream of owning your first home.
Check out additional topics to make personal finance SLIGHTLY EDUCATIONAL on our Personal Finance page.
