The journey to homeownership has never been easy, but a new analysis by Realtor.com reveals that baby boomers encountered more significant obstacles than millennials. Despite common perceptions, the data shows that millennials, currently aged 28 to 43, face fewer burdens compared to the challenges faced by baby boomers, now aged 60 to 78.
In the 1980s, when baby boomers were in their prime homebuying years, they contended with extraordinarily high mortgage rates. At their peak, rates surpassed 16%, causing the average monthly home loan payment to spike by 34% year over year. The Realtor.com report noted that during this period, a typical mortgage payment consumed 33.2% of the median household income for boomers, the highest of any generation.
“During the years when boomers turned 30, the share of median household income needed to make the typical mortgage payment averaged 33.2%, the highest of any living generation,” the report stated. In stark contrast, millennials benefit from historically low interest rates following the Great Recession, with their mortgage payments averaging only 22.5% of their median income.
The analysis took into account the average 30-year fixed mortgage rate on a median-priced existing home, assuming a 10% down payment and excluding property taxes and homeowners insurance. The data showed that Generation X (ages 44 to 59) faced a 25.8% burden, while the Silent Generation (ages 79 to 96) faced a 22.6% burden when they turned 30.
Reliable mortgage data dates back to the early 1970s, covering only part of the first-time homebuyer experience for the Silent Generation. The youngest millennials will turn 30 by 2026, which could alter current trends.
Historically, a front-end debt-to-income (DTI) ratio of 28% is often cited as a benchmark for mortgage affordability. However, DTIs have exceeded 30% at various times across generations, particularly in the past two years. The highest recorded DTI ratio was 53.69% in the third quarter of 1981, during the height of the boomer-led housing market.
Millennials who entered the market during the COVID-19 pandemic in 2020 had an average DTI ratio of 20.25%, which has now risen to 33.42%. Realtor.com’s senior economic analyst Hannah Jones highlighted the ongoing challenges in today’s housing market: “Though today’s housing market is not the least affordable in history, it is the least affordable in 40 years and suffers from low inventory levels. Buyers in today’s market face high prices, high mortgage rates, and low levels of affordable inventory, making it exceptionally challenging to purchase a home as a first-time buyer.”
Despite the affordability metrics, many millennials have delayed home purchases. Inflation-adjusted home prices have grown 18% for boomers, 23% for Generation X, and 14% for millennials compared to the prior generation. Data from the Berkeley Economic Review showed that 45% of boomers were able to buy their first home between the ages of 25 and 34, while only 37% of millennials in that age range were homeowners as of 2019.
The report also pointed out that boomers did not face the same student loan burdens as millennials. However, the job market of the 1980s posed additional challenges, with the U.S. unemployment rate peaking at 10.8% in late 1982 and averaging 7% from 1976 to 1994. In contrast, millennials and Generation X experienced average unemployment rates of 5.6%.
David Clark, a retired economics professor at Marquette University, emphasized the impact of the late 2000s housing crash and the post-recession labor market on millennial homeownership rates. “They got to their 30s at the worst time possible for buying a home. You’re coming out of the Great Recession, and you’ve got a pretty weak labor market as a consequence,” Clark explained. “They’re saddled with some pretty significant college debt. And finally, this was not a smart time to buy a home, when prices were going down.”
The Realtor.com report underscores the varied experiences of different generations in the housing market, shedding light on the complex factors influencing homeownership across decades.