Is The American Dream Out Of Reach For Millennials?

Sep 2, 2020

Owning your first home is a rite of passage — a marker of true adulthood. For those privileged enough to buy a house, it is often the first step in building wealth. But millennials are not achieving that milestone at the same rate that Baby Boomers and Gen Xers did at their age. 

Host Frank Stasio examines the reasons why with Jung Choi, a research assistant at the Urban Institute who studies the barriers to millennial home ownership. Sasha Kanarski also joins the conversation to share her personal experience buying a home in the Triangle and her expertise as a real estate agent with The Spot Studio. Stasio, Choi and Kanarski reflect on recorded voice memos from real estate agents in other parts of the state, including Faith Triggs, a Charlotte-based real estate agent with Keller Williams Realty who details the reasons behind lower rates of Black home ownership in Charlotte. Real estate agent Tony Harrington, president of Cape Fear Realtors, reflects on the market in eastern North Carolina.

Stasio, Choi and Kanarski also hear from millennials about their experiences in the market, including Nick Knittel, Sarah Odum, Anna Shelton-Ormond, Kirsten Engelbert and Matthew Hoagland, author of “Think Small:  A Millennial’s Guide to Building a Meaningful Life in Rural America” (Matthew Hoagland/2020).

Then Stasio further examines the racial gap in home ownership and the current relationship between homeownership and wealth building in the American economy with Roberto Quercia. Quercia is the Harris distinguished professor in the department of city and regional planning at the University of North Carolina at Chapel Hill and co-author of “A Place Called Home: The Social Dimensions of Homeownership” (Oxford University Press/2017).

Interview Highlights:

Choi on how the Great Recession is impacting today’s housing market:

The median credit scores have actually increased between 2000 and currently now. … The median credit score at mortgages at origination has increased about 40 points. So you have to have better credit scores to access [the] homeownership market currently. And as you know, young adults, on average, have lower credit scores than older adults. … After the Great Recession, the housing supply has been more limited. And when it's [more costly] to build a home, the developers actually prefer building more expensive homes, because they can get more profit from building those homes. That means the more affordable homes, the homes in the low price tier — they're more difficult to purchase, because there's limited supply of those homes.

For us, it was really important that we knew exactly how much we were going to be spending on this house, and those details get kind of muddied. ... So I think that was the biggest learning curve ... just trying to stay in control of the process the whole time. - Anna Shelton-Ormond

Choi on how renters are affected by the current housing market:

Millennials are now more likely to rent, and because of the limited housing supply, the rent cost has also increased. That means that for the same amount of income that you earn, you have to put more into your rental payment. That means in the long run, you'll have less amount to save for your future homeownership and make down payments.

Kanarski on the real estate market in the Triangle:

We have a housing shortage. So we have a lot more buyers looking and not enough houses available. Right now, we have about half as many homes as we had this time last year on the market, and more buyers. … Just last week, I placed an offer with a client that was over $30,000 above asking in a downtown Durham neighborhood, and we still didn't get it when we thought we absolutely had it.
 

There is an expectation now to be okay with the fact that you are making the most important financial decision most likely of your life — or at least my life at the moment — and needing to do that on this hyper-accelerated timetable, because you are competing with dozens of other people. - Nick Knittel

Choi on the impact of today’s economic turmoil on young adults:

A lot of young adults who graduated from college or grad school are really finding it difficult to find a good job. And this is likely to affect their long-term financial well-being because a lot of research actually suggests that if you actually graduate during a negative economic situation, it's not just affecting the current wage, it actually has a long-term impact on your future wages.

Choi on the importance of owning a home to building wealth:

We do find that there is evidence that if you buy your homes earlier in life, you have significantly greater housing wealth at the time you retire. And so we do think homeownership is still a critical component of building wealth in this country. But sadly at the same time, we also think that you have to have sustained homeownership for a long term. ... For a lot of Black homeowners, they have a greater tendency to return back to renters after owning the first home. So it's not just about giving access to homeownership. In order to build wealth, you have to help them to maintain [and] keep their home-owning status.

Over the course of being unemployed since January, all of my savings have dried up. I'm basically out of money. So now I have no idea how I would ever in the semi-distant future buy a house. I suspect that by the time I find a reasonably well-paying job and build my savings back up, I could be in my 40s pretty easily. - Kirsten Engelbert

Quercia on the role of home ownership in today’s economy:

When manufacturing was king in this country, homeownership was great because manufacturing requires a stable economy, a stable workforce. These days we live in a knowledge-based economy and so home ownership is not as necessary as before for wealth building. I think most millennials as they have done have invested more in education, in human capital that they carry to build wealth. So, we know from research, that those that buy a house do build wealth compared with those that do not, but that's not the panacea to a bright future or a certainty as it used to be.

Quercia on redlining and its impact today:

Although we banned those practices a long time ago, the legacy continues. And in addition to that, many low income communities are exposed to other local problems. Like for example, if a community needs a new place for the landfill, often it's located close to a low-income community, so that can impact their property values. So there are a lot of issues, both historically, in terms of legacy, but also at the local level that affect the ability of low-income homeowners or homeowners of color to accumulate wealth via homeownership.