The wealth discrepancy between baby boomers and millennials has long been known. However, the extent of this discrepancy reveals a lot about the current dynamics of America’s housing market, largely influenced by an aging population.
Despite millennials having reached their prime home-buying years, they are being sidelined by their more affluent parents who are preventing them from purchasing their first homes. The proportion of millennial homebuyers exceeded that of boomers between 2014 and last year. However, the boomer generation has recently reestablished itself as the leading home-buying demographic in the U.S.
The Bank of America Institute, the bank’s in-house economic research division, identified the main factors contributing to this trend and some unexpected shifts in millennials and boomers’ housing preferences in its biannual “Housing Morsel.”
The report takes into account the internal migration trends of Bank of America customers in recent years. With its real-time estimates of population flows, it provides an extra year’s worth of insights compared to Census Bureau data, particularly in relation to migration trends.
Quoting data from the Federal Reserve, Bank of America states that boomers possess eight times the wealth of millennials – a staggering $73 trillion compared to a mere $9 trillion.
While it’s true that boomers have had significantly more time to amass wealth, it’s worth noting that millennials own approximately 84 cents for every dollar owned by boomers at the same age, according to the St. Louis Fed.
Millennials gained some ground at the onset of the pandemic, but were soon surpassed once more by their older counterparts as interest rates began to rise. With their sights set on downsizing for retirement, boomers have an advantage over millennials who are just seeking to buy their first homes.
“In the current environment of high home prices and interest rates, baby boomers are better positioned financially to purchase homes,” the Bank of America report states.
The Boomers Outbidding You for Your First Home are Likely Your Parents’ Peers Much of the wealth accumulated by the baby boomer generation is already invested in real estate equity.
This can be used to finance new homes closer to their social networks, an advantage that millennials don’t have at their disposal yet. In terms of real estate assets, millennials had roughly $5.5 trillion at the end of 2022, compared to boomers who had nearly $19 trillion.
The desire of boomers to live near their children and grandchildren is ironically inhibiting these family members from building their own housing wealth.
With boomers living longer – a positive development for mankind but less so for the housing market – there’s less housing available for other generations given the existing supply shortage in the U.S.
Millennials are currently navigating one of the most cutthroat, costly, and unforgiving housing markets in recent memory. Even the wealthiest among them are struggling to realize the American Dream.
Another probable reason for boomers outpacing their offspring is their financial standing. Having more disposable income makes them less sensitive to interest rate fluctuations, thus the jump in mortgage rates from below 3% to around 7% hasn’t significantly slowed their homebuying momentum.
Bank of America anticipates millennials to largely remain bystanders in the near future, considering the current market inventory is beyond the reach of many.
However, the bank remains hopeful that this trend won’t be permanent, predicting a resurgence in housing demand for younger millennials (those under 35) in the coming years.
Boomers and Millennials Have Different Preferred Destinations
Pandemic-triggered domestic migration patterns are still evident in 2023, according to BofA.
Both generations are exiting large, high-cost cities like Boston, New York, San Jose, and San Francisco. However, their relocation destinations differ markedly.
Millennials are flocking to cities like Austin, Cleveland, Dallas, and Tampa, whereas boomers are gravitating towards Las Vegas, Phoenix, Orlando, and Tampa.
Charlotte, Houston, and Philadelphia are also attracting both groups, while cities like Chicago, Detroit, and Washington D.C. continue to experience population decline.
In these recipient cities, large inflows typically imply rising housing prices, but this trend seems to have reached a saturation point in cities like Austin after significant price hikes in 2020 and 2021.
Alongside increasing interest rates, housing affordability has further diminished.
As borrowing costs for these homes rise due to Fed rate hikes, demand has cooled despite persistent population growth in these popular cities, leading to a moderation in home price appreciation, the report notes.
However, these population inflows are still driving rent increases, particularly where owning remains unaffordable. According to BofA, the median rent in Austin rose by 11% in April 2023 compared to the previous year, while Orlando and Tampa saw a 14% increase.
While most millennials relocating to cities like Austin may continue to rent for now (due to affordability constraints), Bank of America predicts that the significant population inflows will likely cause housing prices to rise again in the long term in these sought-after destinations.