For many homebuyers in Covid-era California, closing on a home is akin to winning the lottery.
While some will luck out, the odds are stacked against the average Millennial first-time homebuyer thanks to their historically sluggish income, especially against 2022’s breakneck home prices.
Millennials, now the largest generation on the face of the earth, are between 26 and 41 years old in 2022. This generation, which came to age around the time of the Great Recession, is no stranger to financial distress and unemployment.
Still, the financial barriers to homeownership imposed on Millennials mount further: underemployment and wage stagnation chew away at this generation’s homebuying aspirations, according to a recent survey conducted by Legal & General.
Agents helping first-time homebuyers break into homeownership are better suited to assist when they understand the compounding factors affecting the Millennials, who are currently in their prime income-earning and homebuying years.
Read on to learn about the financial obstacles that block or delay Millennial homeownership — and what that means for agent incomes in 2022.
Unstable employment means unstable housing
Californians across the board suffer when employment opportunities are limited. Millennials, many working less than full-time hours or not working at all, are now steeped in this reality first-hand.
The single greatest factor impacting California real estate is employment. [See RPI e-book Real Estate Economics Chapter 1.1]
Without jobs, wage earners have insufficient financial ability to make rent or mortgage payments. This is because the local quantity and quality of jobs impact the level of rents and home prices in the area.
Employment is improving slowly in California after a devastating crash coinciding with the 2020 recession. Between the December 2019 peak and the April 2020 trough, about 2.7 million Californians — over 15% — lost their jobs.
Over the course of a year, from January 2021 to January 2022, 1.2 million jobs have been added across the state. Still, California jobs are 690,000 or 3.9% below the pre-recession December 2019 employment peak.
1 in 5 mid-aged Millennials (those between the ages of 30-35) were unemployed when the Legal & General survey was conducted in March 2021. Only 48% in this age group were working full-time.
Further, the overall employment figure for Millennials as a whole, both full and part-time, was 63% — with 51% working full time, according to the 2021 survey.
The American Dream of homeownership is out of reach for these unemployed and underemployed Millennials, especially in California. To restore the dream, California will need to regain its footing on jobs.
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Wages stagnate while market accelerates
Even barring an overnight miracle in employment, Millennials and first-timers would still struggle to enter California’s housing market in earnest thanks to wage stagnation.
66% of Millennial respondents working full-time hours reported earnings of under $60,000, according to the Legal & General survey.
Millennials earn, on average, around $47,000 per year as of March 2020, according to U.S. Census data. Of Millennials surveyed who might qualify for a home, conservatively estimated at earning $50,000 or above, only 47% meet those qualifications. An average Millennial might qualify for a home (assuming they had the down payment saved up) priced around $220,000.
But home prices in California easily eclipse that.
As of January 2022, low-tier home prices have surged 19% year-over-year across the state.
In the 1970s, the median national income for first-time homebuyers was $52,830 and the median national home price was $87,370. In the 1980s, median income had dropped to $51,180 while the average home cost $102,370. By the early 2000s, income had risen only slightly, to $58,740 — while the average home price was $144,800, according to a 2015 Zillow report.
Over the past several decades, wages have stayed stagnant while home prices continue to climb.
Since 2012, Millennial income in the U.S. has risen 24% — while home prices shot up 86%, according to a 2020 NerdWallet report.
Here in California, 35% of 25-34 year-olds — the typical age of first-time homebuyers — own a home as of 2019, compared with 43% of this age group who owned a home in 2006 at the height of the Millennium Boom.
Up, up and away floats the dream of homeownership.
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First-time homebuyers and households of color most impacted by interest rate hikes
Qualifying to buy
The barriers to Millennials’ employment also prove to be a barrier to homeownership.
Expect their homeownership rate to continue remaining low through 2024 as they continue to slowly muster savings for down payments and grapple with the financial fallout from the 2020 recession, including inflation further diminishing wages and interest rate hikes pushing away their ability to qualify to purchase a first home.
Agents yearning for a slice of this demographic can look to their local jobs market performance for indications of an uptick in sales volume.
As Millennials’ wages improve, qualifying them to buy, they will enter the housing market around the same time Baby Boomers will retire and relocate, creating a stable and fluid housing market for California, beginning around 2024-2025.
Until then, advise Millennial clients hopeful to purchase within the next few years to work on saving up their down payments and paying down debts, and continue to check in with them over time.
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Want to learn more about the connection between employment, the economy and real estate? Click the image below to download the RPI book cited in this article.
