Millennials Are Missing Out on Home Equity
January 13, 2017
The delay of millennials into homeownership will likely affect their finances for years to come. Real estate wealth has proven to be a major contributor to the financial wealth of previous generations.
Indeed, “the most impactful contributor to consumer wealth since the great financial crisis has been growth in home equity,” says Brad Friedlander, managing partner at Angel Oak Capital Advisors. “Similarly, there has been a growing wealth gap between homeowners and renters, largely due to home equity.”
Read more: More Equity Likely Coming to Owners
U.S. homeowners captured more than $12.7 trillion in home equity by the end of the second quarter of 2016, the highest since the end of 2006, according to the Federal Reserve.
Home values have been on the rise, but renters continue to miss out. Instead, renters are faced with rental payments that are about 20 percent more than what they were in September 2010.
Younger Americans are missing out on homeownership and they’re falling behind financially than older generations, economists note.
“The last few years have been an opportunity to make equity and grow wealth, but it’s not too late for millennials,” Friedlander says.
Underwriting standards for loans are easing somewhat, which could allow more to qualify for a mortgage. Lawrence Yun, chief economist of the National Association of REALTORS®, notes that FHA loans require only 3.5 percent down – or translated to about $8,750 on a $250,000 mortgage.
Younger homebuyers who welcome the idea of a “starter home,” like previous generations did, may find more opportunities to enter the market than continue to wait until they can buy their dream home, Yun says.
“Maybe they need to lower their expectations of what that first home should be or settle for a smaller home in a different neighborhood,” Yun says.
Source: “Lack of Young Homebuyers Fuels Generational Wealth Gap,” USA Today (Jan. 12, 2017)
Updated: August 17, 2018