Boomers Stay Put with Low Rates, Millennials Struggle with Housing Costs

Key Takeaway

• Baby boomers, making up one-third of U.S. homeowners, are incentivized to stay put due to low pre-2022 mortgage rates.
• Millennials face challenges entering the housing market as starter home affordability has nearly doubled since 2019 and inventory remains low.
• Despite these dynamics, millennials have recently surpassed baby boomers as the largest homebuying demographic, driven by both first-time buyers and those upgrading homes.

Boomers Staying Put Amid High Mortgage Rates

As baby boomers increasingly opt to age in place, a trend driven by elevated mortgage rates and personal preferences, millennials find themselves struggling to enter the housing market. According to a recent column in Fortune, baby boomers, who make up roughly one-third of all U.S. homeowners, are incentivized to stay in their homes, especially if they have low, pre-2022 mortgage rates or no mortgage at all. This reluctance to move is creating a significant inventory shortage, making it difficult for millennials to find affordable homes.

The Financial Dynamics at Play

The financial landscape is a key factor in this generational housing tug-of-war. Elevated mortgage rates, which have soared to over 7%, discourage boomers from selling their homes and taking on new, higher-rate mortgages. Data from Redfin shows that the salary needed to buy a starter home has nearly doubled since 2019, further exacerbating the affordability crisis for millennials. Additionally, boomers are holding onto larger homes with three or more bedrooms, contributing to the limited inventory and high costs in the housing market.

Broader Market Implications

The broader implications of this trend are significant. The National Association of Realtors (NAR) reports that millennials have recently surpassed baby boomers as the largest homebuying demographic. However, the tight inventory and high prices are keeping many potential buyers on the sidelines. According to Business Insider, the U.S. is short between 2.3 million to 6.5 million housing units, a shortage that prevents home prices from crashing despite high demand. This tight supply, coupled with elevated mortgage rates, creates a challenging environment for new buyers.

My Perspective: A Complex Interplay of Factors

From my viewpoint, the current housing market is a complex interplay of generational preferences, financial constraints, and broader economic conditions. While baby boomers' decision to age in place is understandable given the financial benefits, it creates a ripple effect that impacts younger generations. Millennials, facing high costs and limited options, are caught in a difficult position. However, it's worth noting that not all boomers and millennials are locked into this dynamic. Some millennials are stepping into homeownership for the first time, and older millennials are transitioning to larger homes, as highlighted by NAR's deputy chief economist Jessica Lautz.

Street Views

• Jessica Lautz, National Association of Realtors (NAR) (Neutral on the housing market):

  "The generational tug-of-war between millennials and baby boomers continued this year, with millennials rebounding to capture the largest share of home buyers... This notable rise is attributed to both younger millennials stepping into homeownership for the first time and older millennials transitioning to larger homes that suit their evolving needs."