Why do so many millennials live in their parents' basement?
Even if they can afford a home, they're not sure they want to buy
As a parent to two adult children, I am no stranger to the term Millennials. A millennial is classified as an individual born between 1982 and 2000 – the same time period that served as the backdrop to major innovation and rapid change.
Millennials are now the largest age group in the U.S. with an estimated 83.1 million individuals, outnumbering baby boomers at 75.4 million. With Millennials now representing more than one quarter of the nation’s population, their generation will have an increasingly dramatic impact on social, political and economic trends.
So what particular trends are we seeing?
Homeownership no longer top of mind
Millennials are delaying the purchase of a home. According to a recent article, the current millennial professional does not earn enough to purchase a home in the metro Denver area. The city was ranked No. 12 in Bloomberg's “The 13 Cities Where Millennials Can't Afford a Home.” There are three reasons why this is true in today’s market: the great recession of 2008-2009, lower wages among big companies and a completely different set of priorities.
As a result of watching the value of their parents’ home drop drastically during the 2008-2009 housing bubble, Millennials have grown wary of homeownership as they saw the value of their parents’ home drop drastically. For years, they were brought up to believe that housing prices never decreased. But in the span of one year, they experienced firsthand housing values falling through the floor.
The homeownership situation is a Catch-22 for Denver Millennials. Now may be a great time to purchase a home when compared with the high cost of renting. However, the city’s desirability is also causing an influx of Millennials to relocate here, creating more competition among high-paying jobs that has unfortunately allowed companies to pay less for good talent. For the few Millennial professionals who can afford to make a down payment and are not carrying student debt, buying a home could be the right fit. One way to alleviate costs is to have roommates that can help contribute to the mortgage as well – an option that some of our millennial clients consider. However if student loans are still a concern, I would suggest paying down some of the debt first.
Another reason to consider for Millennials’ lack of interest in homeownership may simply be that it is not a priority to them. It was evident from a discussion with my children and their friends that traveling, paying student loans, and saving for retirement are placed as much higher priorities than purchasing a home – or even marriage and children.
According to the Pew Research Center, in 1981 43 percent of 18- to 31-year-olds were married and living on their own. Compare that with the millennials of today where 23 percent of them are married. This would imply a drop in the sales ranging from jewelry and furniture to diapers and baby food.
Additionally as Millennials continue to find newer, more efficient ways to go about their lives, it has filtered into our lives as well. Once seen as essentials in my generation are now slowly becoming things of the past. Why purchase a car when they can rent or order one? Why need a GPS system, when you have a smartphone? Why the commute to a traditional bank, when you have a debit card and online bill pay? What camera? What travel agent? These changes have undoubtedly impacted our economy and the way wealth is now being spent – not just for Millennials but for all Americans including me as well.
Evolving investment philosophy – for the better
One item that has elevated among Millennials’ list of priorities is their deep commitment to sustainable investing – more so than any previous generation. According to a recent Morgan Stanley survey, Millennials are twice as likely to both invest in companies or funds that target specific social/environmental outcomes and divest because of objectionable corporate activity. As they seek to consider both financial return and social good, this generation has brought the concept of dual investment objectives – earnings return and making the world a better place – to the forefront of investment strategy. When they can invest, the put their money in investments comprised of good corporate governance, social responsibility and environmentally aware companies.
The bottom line
Though my generation and generations past may be slow to understand why Millennials like my children are deferring homeownership, marriage or even children, I am able see how this may not be a completely bad trend. Especially if they are focusing more time and effort into bettering life and society.