Millennials aren’t buying for lack of cash, not interest

What is really keeping millennials from purchasing a home?

Recent surveys from Lending Tree and Zillow are reporting that while many millennials are interested in owning a home, financial issues coupled with the lack of product in the starter-home price range is holding the group back.

According to Zillow, lower-priced, for-sale housing inventory is growing more slowly than higher-priced homes in most parts of the country. This year, lower-priced inventory increased by 68.3% in the 353 metro areas analyzed by Zillow, while higher-priced inventory increased in 82.2% of these metro areas.

Lending Tree’s survey of 1,009 millennials reported that only 4.4% of non-homeowners in the group said they were not interested in a home. However, more than two-thirds said they needed to earn higher incomes before buying a home.

A recent survey showed a median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas. "Low mortgage rates are helping home affordability to some extent, but the key ingredient – which has been missing to this point – is substantial income growth," said Mike Sante, managing editor of "Millennials, in particular, are struggling to overcome their student loans and save enough money for a down payment."

Across the nation, rising home prices and stagnant wages have cemented a system where more and more household disposable income is going to housing, something that is unsustainable. Since 1975 (earliest data available), home prices (green) and inflation (red) have continued to skyrocket, while real wage growth (blue) has remained mostly stagnant, according to data from the St. Louis Federal Reserve.

Millennials also lack financial awareness. According to the Lending Tree survey, 44.8% of respondents reported having less than $5,000 in savings. Additionally, approximately 21% of respondents said they didn’t know their current credit scores, while another 11% said they have never even checked the scores.

Meanwhile, Zillow attributed the lack of home buying activity from millennials to their delay in getting married and having children, “two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.”

Roughly 42% of millennials say they want to buy a home in the next one to five years, compared to just 31% of Generation X, and by the end of 2015 millennials will become the largest home-buying age group,” said Dr. Stan Humphries, chief economist at Zillow.

Zillow is predicting a big year for home buyers in 2015, with more millennials entering the market amid rising rents.  By the end of 2015, millennial buyers (under the age of 35) will become the largest group of buyers, overtaking Gen X (35-50 years old).
Markets most favorable to first-time buyers are those with strong income growth among 23-34 year olds, significant growth in the number of entry-level homes on the market and home prices that won't take a big chunk out of buyers' paychecks.

Zillow’s best markets for first-time buyers in 2015:

  1. Pittsburgh, Pennsylvania
  2. Hartford, Connecticut
  3. Chicago
  4. Las Vegas
  5. Atlanta