Why is it so hard for millennials to buy a home?

Millennials are the largest generation in the United States, and everyone has been expecting members of this massive demographic cohort to reshape the housing market. So far, however, it hasn’t quite happened.

Not that millennials don’t value homeownership — two-thirds of them say it’s a central part of the American dream, according to Bankrate’s 2023 Financial Security survey. Still, it’s been a struggle for many aspiring millennial home buyers to become homeowners.

These twenty- and thirty-somethings face a tough market. Home prices remain near record levels, and mortgage rates are much higher than they were two years ago. The combination of low inventory, high inflation, and expensive financing has created an affordability squeeze that’s forcing many millennials to keep renting.

Here’s a profile of this generation, their challenges when it comes to home buying, and their behavior when they do become homeowners.

Millennials are typically defined as those born between the early 1980s and the mid-1990s. Their entry into the real estate market has looked different from that of older generations. Generally, millennials are buying their first homes later than their baby boomer parents. There are a number of reasons behind that delay, but high student debt loads and the lingering effects of career stagnation caused by the Great Recession are some of the most commonly cited reasons.

In the last few years, the triple whammy of pandemic-elevated home prices, tight inventory, and rising mortgage rates hasn’t helped. Among millennial non-homeowners surveyed by Bankrate earlier this year, many cited paltry savings and too-high home prices as their reason for continuing to rent.

Saving enough money, in particular, continues to prove challenging. In Bankrate’s survey, over half (53%) of the older millennials who aspired to homeownership pointed to being unable to afford the down payment and closing costs more than any other reason or any other age group. Younger millennials blamed an array of affordability hurdles: not having enough income (49%), home prices being too high (47%), and not being able to afford the down payment and closing costs (42%).

Dovetailing with that is data from the National Association of Realtors (NAR). In its “2022 Home Buyers and Sellers Generational Trends Report,” 27% of younger millennials say gathering enough funds for a down payment is the “most difficult step” of the homebuying process, with 25% relying on a gift from family or friends to help with their purchase.

In addition to being held back by financial considerations, many millennials are in a general pattern of reaching life milestones later. The average age for getting married has been rising, for example. In 2020, the median age for a man’s first marriage was above 30 for the first time in history, according to Census estimates, while the median age of a first-time bride was above 28, also for the first time. Subsequently, millennials are starting their families later.

And they’re waiting to buy homes. In the NAR survey, the typical first-time home buyer was 36 years old — up from 33 the previous year. That was an all-time high.

Since the pandemic, remodeling has been all the rage among American homeowners. Given their tight budgets and low rates of homeownership, millennials haven’t fully jumped into that game yet. They made up just 9% of homeowners who renovated in 2022, according to the “2023 US Home & Houzz Study,” a survey by home-remodeling platform Houzz.

Still, millennials’ median spending on renovations has increased by 33% compared with 2021 and doubled since 2020. It’s now at $20,000.

Houzz found that millennials did more home-system upgrades than other generations, with automation and security enhancements being their top priorities. And reflecting work-from-home trends, home office upgrades also were more popular among millennials than among members of any older generation in 2022.

To pay for renovations, most millennials (88%) use cash from savings. However, 35% also use credit cards, and they’re more likely to use them than older generations do. Only 15% of millennials used a secured home loan.

If you’re looking to become a homeowner, there are a few key bits of advice to keep in mind:

Work with a real estate agent. Although the housing market is showing signs of cooling, now’s not the time to embark on a purchase without someone to guide you through the process. If you’re a first-time home buyer, it’s even more important to have a real estate professional who understands your needs, concerns, and stresses.

Shop around with multiple mortgage lenders to make sure you’re getting the best deal. It’s not just about interest rates, but the all-in costs and other terms and conditions on your loan.

Make a budget and stick to it. You don’t want to wind up with more house than you can afford. Keep that budget going once you move, too. In Bankrate’s survey, the top regret for millennial home buyers was maintenance and hidden costs being more expensive than expected (expressed by 42% of those with buyer’s remorse). You’ll want to be ready to cover the ongoing expenses, plus whatever issues that inevitably crop up.

Be strategic in financing home renos. Using credit cards to pay for home improvements is a risky move, considering their double-digit interest rates: The average interest rate on credit cards as of mid-May was just above 20%, according to Bankrate’s national survey of lenders. In contrast, the average rate on a home equity line of credit (HELOC) was around 8%. The interest could be tax-deductible as well, if you itemize on your return. You could also consider a home-equity loan, which offers a slightly higher, but fixed-interest rate.