Photo: Robert Clark
Today, young Americans are delaying major life events, like home buying, longer than previous generations and that could end up costing Millennials down the road.
According to a new study by DC think tank the Urban Institute, delaying home buying by even a few years significantly reduce the wealth that Millennials generate over their lifetime.
“The findings suggest that the longer-term consequences of delaying homeownership should also be taken into account by today’s young adults, who are less likely to be homeowners than young adults from previous generations,” reads the study.
Most of today’s older homeowners bought their first home before they were 35, and over a quarter before they were 25, whereas only 37 percent of household heads ages 25 to 34 and 13 percent of those ages 18 to 24 owned a home in 2016.
And while the dynamics of the housing and financial markets have changed dramatically over the last thirty years, the advantages of early buying have not.
1. More bang for the buck
Those homeowners who bought their first home between ages 25 and 34 have the greatest housing wealth by their sixties.
At age 60 or 61, their median home equity (in 2015 inflation-adjusted dollars) is close to $150,000 — compared to just over $76,000 for those who bought between the ages of 35 and 44 and just under $44,000 for those who bought after age 45.
“Ten years of appreciation alone can make a big difference,” reads the study.
2. Less is sometimes more
Homeowners who bought their houses before age 25 have a median home equity of $130,000, which is less than if they bought just a few years later. But, in this case, less sometimes turns out to actually be more.
“The youngest buyers have lower incomes, are less educated, and buy lower-priced homes. The median first-home value for these buyers is less than $70,000, while the median first-home value is around $125,000 for the other three groups,” reads the report.
So even though these homeowners ended up with less median equity, they ended up having the largest return on their investment. The bottom line is, those who bought houses before age 25 got the biggest bang for their buck.
3. Debt-free later in life
For those who bought their first homes when they were younger, greater home equity came from steady home price appreciation over their tenure and paying down their mortgage debt.
And, those owners who bought their first home between ages 25 to 34 lived in more expensive houses in their sixties than those who bought earlier (or later) — their median house value at age 60 (or 61) is $240,000.
Unsurprisingly, homeowners who purchased their home before 25 have lower median house values when they are older but also have lower mortgage debt because they have owned their home longer.
The bottom line is that the rewards of homeownership are long-term and younger Americans should start thinking about — and preparing — as early as possible for their golden years.
“As people age into retirement, they rely more heavily on their wealth rather than their income to support their lifestyles. Today’s young adults are failing to build housing wealth, the largest single source of wealth, at the same rate as previous generations,” reads the study.
Urban Institute used the Panel Study of Income Dynamics (PSID), a dataset that has followed US individuals since 1968, and used data for Americans who reached age 60 between 2003 and 2015. (The PSID switched to a biannual survey in 1997, so it used information at age 61 for those who were not surveyed at age 60.)