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Housing: Many young adults have given up on the American Dream

"I’ll never own a home."

That’s what one in five millennials and one in 10 Gen Zers think, according to a new Redfin survey that polled 3,313 young adults in May and June. They point to their inability to save for a down payment, costly financing, and student loan debt as major obstacles.

The findings underscore just how much housing conditions have deteriorated for those generations entering their prime household-forming and homebuying years and how far the American Dream is out of reach — without major sacrifice or a helping hand.

"I think the big concern is that homeownership is becoming increasingly unaffordable," Redfin chief economist Daryl Fairweather, told Yahoo Finance. "Overall the picture looks like it’s going to get harder and harder for people to break into the housing market and buy their first home."

Barriers to affordability

A homeowner tours their new home, in Washingtonville, N.Y. When it comes to buying a home, it’s common to focus all your saving efforts on the down payment.  (Credit: John Minchillo, AP Photo)
A homeowner tours their new home in Washingtonville, N.Y. When it comes to buying a home, it’s common to focus all your saving efforts on the down payment. (Credit: John Minchillo, AP Photo)

Inflation, rising debt, and higher costs of borrowing are making it harder for entry-level buyers to afford a home.

Nearly half of millennials and a third of Gen Zers cited the inability to save for a down payment as an obstacle, while 21% of Gen Zers and 16% of millennials said they need to pay off student loan debt before they’re able to purchase a home.

More than one-third of respondents said mortgage rates were too high and another third noted they wouldn’t be able to afford monthly mortgage payments.

The average payment took up 36.5% of the median household income in July, a record high and up from 24.3% in 2021, according to Black Knight, a mortgage technology and data provider. Home affordability in July was at its worst level since 1984, the firm found, and that’s before mortgage rates topped 7%.

With rates at 7.23% on Aug. 24, a hypothetical buyer purchasing a median-priced home using a 20% down payment would face a $2,423 monthly mortgage payment — a 91% increase over the past two years, Black Knight cited.

"Mortgage payments are a hurdle. There really aren't that many homes for sale to begin with," Fairweather said. "So people's options are limited."

The shortage of existing homes on the market have also kept home prices elevated this year. Many homeowners are reluctant to sell their homes and lose their current low mortgage rate.

The median home sale price is also at record highs, according to Redfin analysts, up 40% since 2019. Though wages have risen 20% over the same timeframe, they have failed to keep up with rising costs of life – hurting first-time buyers’ chances of entering the market.

"Even if they do find a home that they want, a lot of the time it's out of their budget," Fairweather said. "So that just creates a big barrier, the lack of inventory and the high rates I think are the biggest barriers right now."

'Young adults turn to family'

Prospective home buyers leave a property for sale during an Open House in a neighborhood in Clarksburg, Maryland on September 3, 2023. Homeownership feels increasingly out of reach for younger generations of Americans, who are squeezed by student debt and childcare costs in an era of slower economic growth. (Credit: Roberto Schmidt, AFP via Getty Images)
Prospective home buyers leave a property for sale during an Open House in a neighborhood in Clarksburg, Maryland on Sept. 3. Homeownership feels increasingly out of reach for younger generations of Americans, who are squeezed by student debt and childcare costs in an era of slower economic growth. (Credit: Roberto Schmidt, AFP via Getty Images)

The entry-level buyers making the American Dream happen are putting in extra hustle, getting a little help from mom and dad, or cashing out other investments.

Among the few planning to purchase soon, some 40% of millennials and Gen Zers are working second jobs to save up for a down payment, Redfin found, while 20% of Gen Z and 15% of millennials are planning to use an inheritance.

Additionally, 28% of Gen Z and 23% of millennial homebuyers expect to receive a cash gift from family to fund their down payment. Some also cited selling investments to help pay their down payment, with over 20% of Gen Z and millennials planning to sell stock – and 15% of both generations planning to sell cryptocurrency.

In a separate survey by Redfin, nearly 38% of buyers under the age of 30 had some financial help from family members to help fund their down payment. That’s understandable, given how much more it takes to purchase a starter home these days.

The income needed to purchase a starter home has been climbing higher for over a decade – and jumped 13% in the last year. That means a first-time buyer needed to earn about $64,500 in July to afford a typical US starter home, or $7,200 more than last year.

The reality is that most buyers in these generations may need to wait out the market, according to Keith Gumbinger, vice president of HSH.com, to see if either home prices or rates soften some.

"Presently, mortgage rates are higher this year than last, and existing home prices show less of a drop off this July compared to last year, so affordability at the moment is rather worse now than last year at this time," Gumbinger told Yahoo Finance.

He added: "If mortgage rates remain level (give or take a little) and home prices seasonally soften at the margins heading into the fall affordability might improve just slightly, at least on a month-to-month basis."

Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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