So we’ve all heard the stereotypes about millennials. People say they’re lazy, they stay at home with their parents so they can spend their money and time out at clubs, they don’t want to get jobs, the list goes on.
But is this really true? Of course not. A number of recent studies have broken down just why it is that so many millennials are unable to get out of their parents’ homes and into the real estate market.
Millennials – Entitled? Or Just Thrifty?
A recent study of millennials in Metro Vancouver shows that these young people are spending less on leisure products like alcohol and tobacco than their early adulthood counterparts in the 80’s and 90’s. Instead, over 30% of Vancouver millennials who are staying with their parents are reportedly saving over half their income in order to one day afford their own place. Of these at-home millennials, 57% report that living with their parents is the result of not being able to make enough to pay rent elsewhere.
So much for lazy or entitled. Skyrocketing real estate prices in Vancouver, it turns out, have essentially left these 20-35-year-olds with no alternative but to live at home and try to scrape together enough to one day get into their own place. In fact, studies have also shown that young people in the 20-35 age range spend 30% of their income on rent, which is higher than any other demographic. Add this to the cost of transportation, which makes up between 16 and 22% of their income, and you get as much as 52% of millennials’ income being consumed by basic living expenses.
No wonder they aren’t flooding the real estate market!
Down Payments & Credit
For the millennials who do manage to put together money for a home, there arises the issue of financing. Getting into a home is a complicated process which typically requires mortgage loans, but how many millennials have the kind of impeccable credit banks are looking for?
Millennials are a generation who are all-too-familiar with debt. The average Canadian student graduating from university carries $27,000 in debt right out the gate. Additionally, let’s not forget that this is a generation which was very much present for the financial meltdown of 2008. This combination of factors has, understandably, left millennials extremely gun shy about accruing credit debt.
As a result, millennials are far less likely to own or use credit cards. 63% of adults between 18-29 do not own a single credit card, with an additional 23% only owning one. This means that a huge percentage of millennials have either bad credit or none at all, with a study at NerdWallet pointing out that this generation has the lowest average credit score of any age group.
So, for the millennial who is able to put together some cash for a home, they run into the stumbling block of trying to qualify for a home loan without credit.
The Daunting Labyrinth of Real Estate
Despite the financial challenges young people are facing today, some of them do manage to put together enough savings to find their own home. But what happens then?
The real estate market is not always the simplest or easiest thing for inexperienced people to navigate. As a result, there are an abundance of services available to help people new to home ownership, from brokers and realtors to bankers and loan companies.
For millennials, however, this confusing landscape presents a significant challenge. For one thing, the service of a broker to help with home purchasing adds to the overall cost of owning a home; a cost which many millennials can barely afford as it is. Additionally, millennials, more than other generations, tend to be leery of real estate experts, again as a result of the 2008 real estate catastrophe which looms large in their collective memory.
Without a guide to navigate the real estate market, a lot of millennials simply stay away, settling for rentals and apartments.
So That’s It then?
Despite apocalyptic reporting and headlines like “Millennials are ‘Generation Screwed’ When It Comes to Real Estate”, reports also indicate that an overwhelming majority of millennials still feel that homeownership is a valuable concept and an important measure of success. To those millennials, the takeaway should be this: the forecast may be dark and times may be difficult, but hope is not lost.
Recent changes in fiscal policy and real estate law have added some tools and options for first time buyers, particularly millennials. While prices in Vancouver are expected to continue to rise, we’ll cover some options for millennials looking to find a way into the real estate market in our ongoing segment on millennials and real estate. Stay tuned!
Tracy Valko, Mortgage Broker, B.A., AMP
Dominion Lending Centre
If you enjoyed this post you will love her blog – tracyvalko.ca/blog/