Baby Boomers are reportedly disadvantaging young American families by hanging on to large homes. A lack of large homes coming to the market, increases in interest rates, and a lack of supply of three-bedroom properties are causing the most issues regarding young American families purchasing larger properties. Some millennials have given up on home ownership, while the US government attempts to pass new legislation to help fund and supply family housing.
Empty Nest Baby Boomers Own Almost 30% of Large Homes
A new report from Redfin News highlights that nearly 30% of large homes in the United States are owned by “empty-nest” baby boomers. The data reveals that baby boomers possess double the number of large-family homes compared to millennials with children, who only own 14.2% of such properties nationwide. Meanwhile, GenZers with children have the smallest share of large home ownership, accounting for just 0.3% of these family-sized properties.
Most Large Homes Had Only 1-2 Adults Living There
Based on the latest US Census data from 2022, the Redfin analysis underscored significant differences in the ownership and occupancy of three-bedroom-plus homes among various generations, household types, and sizes. It revealed that nearly 30% of baby boomers owned three-bedroom homes despite having only 1-2 adults residing in them.
Millennials Make up a Larger Percentage of Overall Population
The analysis further observed that while millennials with children own only half the number of larger homes compared to empty nesters, the millennial demographic significantly outweighs baby boomers in population size. Millennials constitute nearly 30% of the adult population, followed by baby boomers at 27%, Gen Xers at 25%, and Gen Zers at 12%.
Baby Boomers Have No Financial Incentive to Downsize
The report highlighted several reasons for the contrast in property ownership. One of the main reasons Redfin pointed to was that baby boomers did not have “much financial incentive” to downsize. More than half of baby boomers (54%) had no mortgage, owning 100% of their property. The report also stated that the costs of homeownership for this demographic were significantly low at just $612, according to the report.
Boomers Benefit From Lower Interest Rates
Baby boomers with mortgages also enjoyed notably lower interest rates. According to the report, this demographic experienced substantially reduced interest rates compared to what they would encounter if they were to sell and purchase another home in the current market, with interest rates just below 7%.
Bright MLS Expects 2024 Interest Rates to Drop
Chief economist for Bright MLS, Dr. Lisa Sturtevant, predicts the interest rates will fluctuate further at the start of 2024, but forecasts rates will drop to 6.2% by the end of this year.
More Evidence That Inflation Is Slowing Is Required
Danielle Hale, chief economist at Realtor.com, stated, “In order to see mortgage rates drop more significantly, the market and Fed will need to see more evidence that inflation is slowing and that the economy is on a sustainable path.”
Larger Homes Are Harder to Find
Young American families also struggle to find suitable properties as large-family homes are in short supply. Redfin noted that “the mortgage-rate lock-in effect and a recent lack of homebuilding” significantly impacted the availability of larger homes.
It Is Unlikely the Housing Market Will Change Soon
Sheharyar Bokhari, a senior economist for Redfin, commented on the report, “There’s unlikely to be a flood of large homes hitting the market anytime soon.” She added, “Logically, empty nesters are the most likely group to sell big homes and downsize…Boomers don’t have much motivation to sell, financially or otherwise.”
Younger Americans Are Struggling With the Increase in House Prices
House prices also increased, particularly in 2023, with many millennials struggling to afford to buy. With that being said, larger homes are more expensive, leaving millennials with children simply unable to purchase larger houses.
Home Prices Rose by 6.1% – Hit by Lack of Inventory
As of October 2023, the FHFA Purchase-Only Home Price Index showed a 6.1% year-to-date increase in home prices. FreddieMac anticipates that with more home buyers entering the market due to the inventory shortage, the pressure on house prices could escalate further in 2024.
Young Families Turning to Rentals
Due to the scarcity of larger homes available for sale, rising interest rates, and house prices, numerous young families opt to rent spacious properties. Redfin reports that nearly 10% of millennials with children rent three-bedroom-plus homes, while others rent smaller properties.
12% of Millennials Believe Home Ownership Is Out of Reach
According to a recent survey by Redfin, 12% of millennials believe they will never achieve homeownership. Meanwhile, 7% cite their reluctance to purchase due to concerns about the expenses associated with property ownership.
Inventory Remains Historically Low
In a recent report, FreddieMac highlighted that despite a 15.3% year-to-date growth in existing housing inventory by November, the inventory level remains exceptionally low compared to historical standards. The report attributes the lack of inventory to the rate-lock effect, the main factor driving the shortage.
New Legislation Proposed to Increase Supply
Recently, the Biden administration issued a statement indicating the government’s intentions to assist hundreds of thousands of households in achieving homeownership. A new proposal will reportedly form part of a broader effort to reduce housing expenses, increase the supply of affordable homes, and alleviate the increasing financial burden associated with homeownership.
Proposal to Promote Homeownership for an Additional 500,000 Households
The Administration is backing a proposal introduced by Democratic Senator Ben Cardin and Republican Senator Todd Young. The Neighborhood Homes Investment Act would “promote homeownership for an additional 500,000 households while increasing neighborhood revitalization investments,” explained the White House’s National Economic Council director, Lael Brainard.
New Federal Tax Credits to Fund Proposal
A draft of the bill also aims to introduce a new federal tax credit that would help fund “the development and renovation of 1-4 family housing in distressed urban, suburban, and rural neighborhoods.”
Helping Families Onto the Property Ladder
Brainard explained the new proposals could “help make homeownership a reality for families who do not have the advantage of previous generational wealth building from homeownership. Passing this legislation could begin to close the stubborn racial gap in homeownership,” he added.
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