Millenials today can not afford to buy a home....and it's not their fault

Thanks to soaring housing prices, it is far more difficult for today’s generation to buy a home in comparison to their parents 30 years ago. Gone are the days of the 70's and 80's when you only needed 2-3 times your annual income to buy a new or second-hand home. For first time in today's world, home buyers need to make 12 times their annual income to afford a home cash. This, by in large is the reason so many home buyers are deeply in debt with 35-year mortgages and 100 percent loans.

In this blog, we would like to shed some light on the difficulty in buying a home and how this modern generation can fight this epidemic with a concept that we here at MCS call “Bring Your Own Tool (BYOT)”. We will explain later.

Numbers show it’s difficult for Millennials to buy a home in comparison to their parents

In 2018, the average family income was $61,419 a year. Compare this to 1992 in which the annual household income was $39,000. With these two variable, you might doubt the truth of my assumption about difficulty in home ownership. However, if you look at decreased mortgage rates from 9.71% to 4.65%, and increased student loans from $5,200 to $29,000, the average home cost range from $80,626 to $250,493 between this span.

Student debt, the down payment for a mortgage, job insecurity, economic factors, and booming home prices are some of the biggest obstacles to buying a home for younger generations.

The biggest hurdle for the average 25 year old is accumulating sufficient funds for a deposit and then persuading a bank to advance them a mortgage because of this variable rate. It is also worth mentioning that the home ownership rate among millennial ages 25 to 34 is on average 8 percent lower than their parents in the same age group.

Hosts of Reasons

. According to the Urban Institute, the home ownership rate is 37% for millennials, whereas it was 45% for their parents at the same age. Bearing this information in mind, let’s now try to figure out why the fleeting notion on millenials who do own homes are "one-in-a-billion, mythical unicorns".

Student Debt

Raging student loans are one of the biggest contributing factors that elude millennials of reach of home ownership. The Urban Institute has revealed that due to unprecedented student debt the chance of home ownership for younger generations have reduced by 15% points.

Home Prices and Inflation

Millennials prefer to rent instead of owning a home. The reason behind this trend is that fast-rising home prices and higher mortgage rates have made it cheaper to rent a home rather than buying. According to realtor.com, over the past year, the monthly cost of buying and owning a home has gone up by 14% as compared to an increased rate of renting, which is only 4%.

The affordability to buy a home at the median price has significantly declined in recent years because of financial crises, inflation, and recession in the market.

Down Payment

Younger generations are struggling to save for a down payment and qualify for a mortgage. The rental market is generally much more affordable. So why buy a home? One of the reasons is, over several years, the home prices have increased a great deal while the income has remained stagnant.

Job Insecurity

In addition to the economy rifle, another aspect that has significantly impacted the chances of home ownership among younger generations is poor job prospects and low wage growth. Job security is a thing of a past.

Often, lower home prices can be found in low populated areas; however, these areas are limited in job opportunities. Large job opportunities can be found in larger cities but it is in these locations that the housing market is unattainable because of high prices.

Personal Preferences

Millennial are in no rush to get their hands on house keys because of economic disadvantages and personal preferences. They are not at ease like their parents who bought homes as quickly as they could. Delayed marriages are one of those preferences that have the biggest impacts on the desire to own a home.

In the early 1960's, the average age of marriage was early 20's, which has now climbed up to late 30's. Similarly, millenials are no rush to reproduce. Having children increases an individual's desire to provide the security of home ownership.

The Way Forward

They say constraint breeds creativity and so the concept of 'Bring Your Own Tool' can be the solution to this crisis. Consider Uber. Uber has transformed the idea of giving someone a ride into a multi-billion dollar enterprise. Uber has taken the act of giving someone a normally free ride and has created a platform where everyone wins. The same concept applies to Facebook and its sharing tool or GoFundMe. The common thread here is that they all use the power of exponential numbers to their advantage.

BYOT uses members of a community, or family, or group of friends, or particular industry to hone their individual talents together and offer their services for free to other members in exchange for their free partners’ service, similar to a potluck.

Consider this, Edward, Paul and Chris are all contractors. Edward is an electrician, Paul is a plumber and Chris is a carpenter. The team decides to assist Edward in building his house. Edward does his own electrical work, Paul performs the plumbing and Chris performs the carpentry. Similar to an Asue, or a Bring Your Own Beer party. When they are done with Edward’s home, they move on to Paul’s, and so on.

Clearly this approach is not completely free, because there is a cost associated with time and labour. However, the overall cost will be substantially less as each person will barter their time in exchange for their partner’s time. Instead of exchanging money, they are paying with expertise.

Imagine the possibility if there was a group that had partners to perform all trades, from masonry all the way to painting. This approach falls in line with the millennial way and the thought process of how people are thinking outside the box to create gains for less. This is disruptive, and ultimately places the cost of housing in our hands.

This is one of many areas that millennials have gotten it right. Along with shipping container homes, small cottages, and the use of AirBnB. They understand the power of numbers and the need to eliminate inefficient procedures and take advantage of their collective strengths. From Whatsapp groups, to their 3,000 followers on Instagram, relenting to stay with a company for 30 years and refusal to sign an overpriced mortgage for 25 years. They are perfect candidates for driving this disruption. They have embraced the shift of the masses, but most importantly have accepted to the power of WE.

So sure, as it stands today, young people can not afford to buy a home, but all current indicators suggest the rules to this game are about to change sooner than we think.