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“Generation Renter”

Millennials Delaying Milestone Life Events, Such As Homeownership, to Pursue Different Goals

Sam Khater

George Bernard Shaw wrote that “youth is wasted on the young.” While that is debatable, the young are certainly not wasting their youth when it comes to education, and that is having a big impact on homeownership rates by generation. Several new research studies on Millennials, (aka “Generation Y,” those born in the early 1980s through the early 2000s), indicate that a rise in educational attainment coupled with the effects of the Great Recession are delaying Millennial major life events, such as marriage and homeownership.

The homeownership rate for 25- to 34-year-old Baby Boomers (born in 1946 through 1964) was 51.6 percent in 1980, but for the same age cohort in 2012, it was nearly 14 percentage points lower at 37.9 percent. Marriage often drives the desire to become a homeowner, but it is happening later and later with each successive generation. The share of 18- to 32-year-old Millennials that are married was 26 percent in 2013, down from 36 percent for Generation X (born in the early 1960s through early 1980s) and 48 percent for Baby Boomers when they were the same age[1]. Instead of following in their parents’ and grandparents’ footsteps and tying the knot young, Millennials are now putting marriage on hold, but their focus on higher education has increased. The proportion of Millennials between 25 and 32 years old with a bachelor’s degree was 34 percent in 2013, up from 24 percent for Baby Boomers when they were the same age[2]. The rise of educational achievement has been occurring steadily and started well before the Great Recession began in 2007. Educational attainment is theoretically an investment in future income earning capability, so the fact that Millennials are more educated than prior generations should prove beneficial for their ability to become homeowners in the long term. However, in the short term, they will carry higher debt loads, and those with less than a bachelor’s degree are facing stiffer economic headwinds.

The Pew Research Center examined household incomes by generation four years after each generation went through a recession. They analyzed the real median incomes of 25- to 32-year-old households in 2013 (four years after the 2009 recession ended), Generation X in 1995 (four years after the 1991 recession ended) and Baby Boomers during the early 1980s, adjusting for changes in household size. The Millennial generation’s median income was $57,200 in 2013, compared to $54,100 for Generation X, and $54,800 for Baby Boomers. Yet, the comparison is very different when segmenting incomes by educational attainment and generation. The median income for Millennials with a bachelor’s degree was $89,100, 3 percent higher than Generation X ($86,300) and 16 percent higher than for Baby Boomers ($76,800). Millennials with bachelor’s degrees are doing well relative to previous generations. Differences really emerge when looking at those with less than a bachelor’s degree. For those whose highest educational attainment is some college attendance, Millennials’ incomes are 6 percent lower than Generation X and 12 percent lower than Baby Boomers’ incomes. For those with only a high school degree, Millennials earned 12 percent less than Generation X and 19 percent less than Baby Boomers. While income inequality has increased for the country as a whole, there is more income inequality among Millennials than prior generations.

Delaying marriage, taking the time for educational achievement, and lower income levels for those who have not gone to college has slowed the rate of household formation for Millennials. In 2012, 36 percent of Millennials were living with their parents, the highest share in at least four decades according to the Pew Research Center. Since Millennials are becoming more educated and delaying household formation, their labor and balance sheet profiles are on lower trajectories relative to previous generations. According to new Federal Reserve research, Millennials are less likely to be in the labor force and have half the net worth of Generation X and Baby Boomers at the same age, a massive difference[3]. That is due to the associated debt with increased education, as well as lower incomes for those who didn’t go to college. Additionally, educational debt is associated with increased non-student debt because students, with limited or no income while studying, finance living expenses in addition to educational expenses. The share of households under 40 with student debt was 37 percent in 2013, the highest share on record[4].

While Millennials were severely impacted by the Great Recession, they were on a fundamentally different trajectory than their predecessors even before the recession, particularly as it pertains to education, debt and income. The cascading impact of Millennials’ changing economic impact is hampering their ability to achieve homeownership, which puts an increased emphasis on entry level affordable homeownership, such as condominiums. Unlike their predecessors, only a minority of Millennials are homeowners, so perhaps a more apt nickname for this cohort is Generation Renter, or Generation R.

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[1] Millennials in Adulthood, March 2014. Pew Research Center. Millennials are defined as those born after 1980, Generation X is defined as those born between 1965 and 1979 and Baby Boomers are those born between 1946 and 1964.
[2] Economic Status of the Millennials, May 2014. Pew Research Center.
[3] Young Adults Balance Sheets and the Economy, FRB St. Louis, May 2014.
[4] Young Adults, Student Debt and Economic Well-Being, May 2014. Pew Research Center.