It’s no secret that baby boomers are much richer than millennials, but how much does that explain the state of the gerontocratic real estate market in the United States. While most millennials have now reached the “peak” age for buying a home, their parents’ generation is preventing them from buying the first home they’ve long dreamed of. The share of millennial homebuyers exceeded that of baby boomers from 2014 to last year, when baby boomers pushed their children aside and took their places as the number one group of home buyers in the United States. The Bank of America Institute, an economic think tank run by the bank, learned about the market with its semi-annual “Housing Morsel” and isolated the main reasons why this is happening, as well as some surprises on the spot. where millennials and baby boomers are migrating. on their search for accommodation.
The report examines inward migration patterns of BofA customers over the past few years, noting that its real-time estimates population the feeds give him nearly a year of additional information about Census Bureau data, particularly regarding migration trends.
Citing data from the Federal Reserve, BofA notes that the older generation holds eight times the wealth of millennials, $73 trillion versus around $9 trillion. (Yes, baby boomers have had decades longer to accumulate wealth, but according to the St. Louis Fedmillennials own about 84 cents for every dollar owned by baby boomers at the same age.)
While millennials advanced at the start of the pandemic, their elders quickly overtook them once interest rates started to rise. Baby boomers want to downsize for retirement, while millennials just want start-up homes — and only one group has the money to earn.
“In today’s environment of high house prices and high interest rates, baby boomers are better equipped financially to purchase a home,” the Bank of America report said.
Why are your parents’ friends outbidding your first home?
Much of the wealth of the baby boom generation is already held in housing equity, which can be put to good use for new homes closer to family and friends. That’s what millennials haven’t quite got yet, at least comparatively. While millennials held an estimated $5.5 trillion in real estate assets at the end of 2022, baby boomers held nearly $19 trillion. (It can also be pointed out that baby boomers’ desire to be closer to their children and grandchildren prevents these family members from building up their own real estate wealth.)
Baby boomers are also living longer, a positive development for humanity, but also a development that means less housing for other generations, given the shortage of supplies in the United States. Meanwhile, millennials have entered “one of the most competitive, expensive and unforgiving housing markets in recent times”. Even the wealthiest of this cohort go on strike, finding the American dream increasingly inaccessible.
Granted, another likely reason why baby boomers have outpaced their children is that, being wealthier and having more cash on hand, they are likely less rate sensitive, so the spike in mortgage rates of less than 3% at or above the 7% level has not deterred their costs from buying a home as much.
In the short term, Bank of America expects millennials to largely stay away – the current inventory in the market is far too expensive for many to afford. But the bank is optimistic that this trend will not last forever. Housing demand is likely to rebound for millennials, those under 35, in the coming years.
Baby boomers and millennials aren’t moving to the same places
Pandemic-induced internal migration patterns persist through 2023, BofA also found. Baby boomers and millennials are leaving expensive big cities like Boston, New York, San Jose and San Francisco (although the rate at which they leave New York and San Francisco is slowing compared to the early years of the pandemic). What is interesting is that they largely move to different places.
Millennials are moving to cities like Austin, Cleveland, Dallas, and Tampa. Baby boomers, meanwhile, are heading to Las Vegas, Phoenix, Orlando and Tampa.
Charlotte, Houston and Philadelphia are also popular destinations, while Chicago, Detroit and Washington DC continued to see people leave.
While large inflows usually mean higher house prices, this is no longer the case in some of these cities. Prices have risen so much in 2020 and 2021 in cities like Austin, according to the BoA, that they may have finally reached a tipping point. With interest rates also on the rise, no one can afford to pay even more.
“As the Fed’s rate hikes have pushed up borrowing costs for these homes, demand has slowed despite continued population growth in these popular cities, leading to a correction in home price appreciation. “, says the report.
That said, entries still lead to steep rent increases, especially as property remains unaffordable. Median rent in April 2023 in Austin rose 11% from a year earlier, according to the BoA, while median rent in Orlando and Tampa rose 14%.
While many millennials moving to cities like Austin can continue renting for now (that’s all they can afford), Bank of America says huge inflows mean that in the long run, prices accommodations will continue to increase in these popular destinations.