"Everyone locked in a 3% mortgage except Millennials"
New data indicates Millennials are spending significantly on housing as many of them were not ready to buy a home and capitalize on the historically low borrowing rates during the COVID-19 pandemic.
The average 30-year fixed mortgage rate has risen to 7.79%, bringing house prices to record highs, and Millennials have been left struggling to secure their first home.
“[The] effective mortgage rate is still below pre-COVID levels. Everyone locked in a 3% mortgage except millennials,” the Bank of America (BofA) said in a note obtained by Markets Insider. “Millennials spend significantly more on housing, while boomers spend more on health care and entertainment.”
Declining housing affordability pressuring Millennials
Data from the BofA shows Millennials have experienced a near 20% increase in mortgage debt since the fourth quarter of 2021 compared to Gen X and Baby Boomers. With the rise of inflation, the Federal Reserve has hiked interest rates 11 times since March 2022 in an effort to balance the market. As a result, Millennials and younger Americans have been challenged in their efforts to buy their first home.
A Fortune report noted BofA analysts said, with regards to the bank’s eighth annual millennial housing survey, that the lack of affordability is why “attaining the American dream is becoming more challenging than ever.”
“By almost every measure—rents, home prices, interest rates—this group expects to pay more for housing even as it already takes up one-third of their household income,” they noted.
The survey of over 1,000 Millennials with ages 25 to 41 and average household incomes between $25,000 and $75,000 found two-thirds of Millennials are set on purchasing their own home and would do so in two years. “While some Millennials could feel motivated to buy a home soon to get ahead of cost increases, others may stay out of the housing market due to affordability challenges, particularly if rent moderates,” the analysts wrote.
According to Redfin, in June, the price of the average entry-level home reached a record high of $243,000, up more than 45% compared to prices before the pandemic. This means a first-time homebuyer should be earning around $64,500 annually, which is over $10,000 higher than the average wage of Americans with ages between 25 and 34.
Have thoughts about this story? Let us know in the comments below.
