Will Future Generations Ever Be Able To Afford A Home? Here's The Truth

Questions about future homeownership viability have become increasingly desperate asks among young people. The dream of owning a home continues as an important feature of young Americans' psyches, but viable paths to becoming a homeowner seem to be growing ever narrower. First-time buyer age has risen once again to an average of 36 years old, according to the National Association of Realtors, continuing to shift this much-desired transition farther out for so many. There are plenty of alarm bells in the housing market, especially as it relates to younger buyers and first-timers.

Interest rates remain astronomically high, for one thing. Further, housing inventory is also muted, partially resulting from the prospect of blistering repayment terms for anyone considering a move. Then there's the problem with institutional buyers who are almost certain to pounce on ownership demographic change as the baby-boom generation prepares to leave their homes over the next decade or two.

Those who are around this 36-year-age mark aren't likely to benefit much from the generational handover, but those in Generation Z may reap some of the rewards. In truth, the outlook is bleak, but this doesn't mean that there is no hope for younger buyers aspiring to one day take hold of their own property and put their stamp on it. The first step toward achieving a goal, especially a big one like buying a home in this hostile marketplace, involves gaining essential knowledge.

Nearly half of adults aged 18-29 live at home

The first thing to keep in mind when worrying about current and future housing woes is you aren't alone. Today, around half of all Americans between 18 and 29 live with their parents. These are the years prime for going away to college or considering a career by other means after finishing up the formative K-12 years. Of course, there are many problems floating around in the undercurrent of modern social and economic structure that contribute to this reality.

For one, financial experts are unified in calling for mandatory financial literacy education during these foundational years. High school graduates simply aren't prepared for the rigors of fiscal adult life. And living at home doesn't provide the full benefits of a real world classroom to impart these lessons, either.

The lack of mobility affects would-be homebuyers in other systemic ways, too. People living at home may be less likely to date or spend time socially. In 2020, the average age for first marriages was 28.1 for women and 30.5 for men, up notably from prior years. Financial weakness may be a motivating factor or a side issue here, but the reality is that young people are even less capable of purchasing a home for themselves when they're doing it alone rather than with a life partner.

Salary shifts haven't translated into real-estate buying power

The job market has seemingly become ice cold as well. Many highly motivated and well-educated job seekers are facing down a gauntlet of difficulties. Ghost jobs, hiring freezes among corporations that once stood as employment magnets in their communities, along with salary packages destined to demand a side hustle to make ends meet all combine to deliver menacing economic insecurity to today's youth. (Read about the effect of money-phobia for millennials and Gen Zers.)

Even for those who prioritize saving for their first home, middling salary figures combined with price inflation across the board makes the down-payment savings figure a big ask. It would take a first-timer almost eight years to build up a 20% down payment figure on a median salary and target home price. The full 20% isn't strictly necessary any longer, one of many homebuying myths that still prevail in the zeitgeist, but achieving this 20% will save you from paying PMI — the bank's insurance bill on your loan.

Perhaps more importantly, though, managing a home's monthly payments after getting over this monumental down-payment hill has become harder, too. More than 42 million American households were "cost burdened" in 2022, according to Harvard University's Joint Center for Housing Studies. Practically, this means that 42 million household budgets (or around one-third of American homes) allocated more than 33% of income to rent or mortgage expenses, a sharp rise from pre-pandemic levels that hasn't been experienced since 2011. Even if you are able to purchase a home, finding yourself "house poor" remains a real and visceral threat to continued homeownership.

'Starter homes' no longer feature 'starter prices'

Another trouble spot in the housing market future generations will deal with can be found in the price of typical homes. The annual income required to afford a home (priced at a median figure) rose to its highest figure yet in August 2023, arriving at $114,627. Qualifying income for a standard home in 2020 was just $49,680, less than half the financial hurdle that buyers today face. Competition for properties and immensely inflated interest rates — 7.10% as of May 21, 2024 — make affordable starter homes scarce.

As a recent buyer myself, it became clear that affordable homes just aren't "move-in-ready" in most cases, and my experience appears to mirror that of other, typical first-time buyers. First-time buyers are either looking at longer savings timelines and higher monthly payments, or affordable housing that needs significant modernization work. Properties with "starter home" prices are increasingly those that have been hit with foreclosure or once belonged to older Americans who haven't updated the style and fixtures to fit with current tastes and needs. In our home, a probate sale, electrical outlets were few and far between, and every room required both major wall fixes and painting, and a flooring replacement.

A helping hand is now integral to the homeownership jump

Unsettlingly, the pathway to homeownership has definitively shifted from hard work and diligent saving to a required helping hand. More and more buyers are finding that they need the assistance of their parents or other loved ones to get them over this hill. Whether that be a place to live while saving for a down payment, or the money for this expense directly. A solid proportion of the burden has been placed on older generations. In the United States, it's fast approaching a climate in which parents will be the active agent in moving their children out of the house rather than the standard evolution from tethered youth to independent and flourishing adults.

As a side effect, it's perhaps important for young people thinking of their future to plan for a time when they may need to help their own children. Anyone seeking to start a family should already be considering any assistance they might be able to provide in financing educational pursuits. Adding housing support to the list may ultimately become the norm. Preparing for this sort of future requires quality planning far out in advance, and the best weapon you have in your financial arsenal is time. Compounded interest is a tremendous financial ally, and so strategizing the potential for financial support long in the future is best practiced when your babies are still that: babies.

Federal and other programs may also aid hopefuls

Finally, note that financial assistance programs can be found in formats that don't require parents or grandparents who can afford to lend a helping hand. FHA (Federal Housing Administration) loans, for example, are mortgages insured by government backing. These loans are specifically tailored to low- and moderate-income households, and provide a pathway forward for buyers who might have lower credit scores. With a score of 580, borrowers can finance up to 96.5% of the purchase (getting into homeownership with a down payment of just 3.5%). Likewise, those with credit scores of 500 or better still qualify for financing with a 10% down payment.

Other federal offers can change the financial picture for homebuying hopefuls, but come about in different sorts of ways. Young people looking to plan out a future in which buying a home is virtual certainty might consider military service. Per GovLoans.com, the Department of Veterans Affairs' home loan program guarantees loans for "eligible Veterans, Servicemembers, Reservists, National Guard members and certain surviving spouses." Eligibility focuses on service under a variety of categories, including discharge "under conditions other than dishonorable."

Federal student loan forgiveness programs, meanwhile, are also changing the way in which U.S. student borrowers manage their educational debt obligations, such as not aggressively paying off their student loans and instead allowing for more intense focus on buying a home. A roundabout approach, one that capitalizes on tertiary economic policies and meticulous planning far ahead of a purchasing opportunity, can help make this dream of owning a home a reality still for younger generations, like Gen Z, even in the face of great odds.