The media age of homebuyers is up from 39 two decades ago, suggesting finances play a critical role in homeownership.
WASHINGTON – The recent shift in the demographics of homebuyers in the United States paints a concerning picture for younger generations. The median age of homebuyers has risen to 49, a significant increase from 39 two decades ago.
The National Association of Realtors (NAR) notes that today’s homebuyers are generally older and wealthier, suggesting that financial resources play a crucial role. The difficulty for young people to enter the market is often because of a lack of financial assets or support from family known as the “Bank of Mom and Dad.”
“We’re talking about a different profile of homebuyer today,” NAR Deputy Chief Economist Jessica Lautz told Axios.
The cost of borrowing is another hurdle, with mortgage rates still around 6.5%. Another issue is the income required to afford a typical home has risen dramatically, now standing at $107,000, a 22% increase from the previous year, according to data.
Young Americans are also dealing with inflated everyday prices and significant student loan payments. This financial strain benefits those with more cash on hand or those who have built equity through previous home purchases, a group that tends to be older.
It’s not just a matter of personal finance. A reported 70% of Americans aged 23 to 40 who wish to buy a home state they cannot afford it. This affordability crisis is further exacerbated by housing prices, which have surged nearly 120% since 1965, adjusting for inflation. The root cause of this crisis is the imbalance in supply and demand.
Housing prices are soaring because of limited supply and increasing demand. The supply is constrained by strict zoning laws and environmental regulations, making it difficult to expand housing either vertically through high-density residences or horizontally by building on undeveloped land.
On the demand side, the growing population, both from natural growth and net migration, intensifies the demand for housing. Millennials, in particular, face multiple challenges. The rising cost of housing, heavy student loan debt, stagnant wage growth despite being well-educated and other financial obligations like high rental costs are all significant barriers to homeownership.
The COVID-19 pandemic further contributed to a shortage of homes for sale, pushing prices even higher. Lending practices have also become less favorable for millennials. Tighter lending standards, requiring good credit scores and low debt-to-income ratios, are especially challenging for this generation, many of whom are still building credit or managing student loan debt.
Generation Z faces similar challenges, compounded by rapid urbanization, population growth and high interest rates, further diminishing their ability to save for a home. The rising median age of homebuyers is a reflection of broader economic and regulatory challenges that disproportionately affect younger generations. The combination of financial constraints, stringent lending practices and limited housing supply presents a significant hurdle for these generations to overcome in their pursuit of homeownership.
© 2023 Benzinga.com – Benzinga does not provide investment advice. All rights reserved.