Many millennials are said to be delaying their entrance into the housing market, and that decision could impact their finances for years to come, real estate experts warn. That's because wealth derived from real estate is believed to be a major contributor to the financial well being of previous generations.
Brad Friedlander, managing partner at Angel Oak Capital Advisors, told USA Today that growth in home equity has been the "most impactful contributor to consumer wealth" since the great financial crisis. "Similarly, there has been a growing wealth gap between homeowners and renters, largely due to home equity," he said.
USA Today reports that homeowners in America have captured more than $12.7 trillion in home equity as of the second quarter of 2016, which is the highest amount of equity amassed since the end of 2006. Home values have been rising steadily, but those who rent have missed out on this price boom. Instead, they've been hard pressed to meet steep rental costs that are around 20 percent more than they were in September 2010.
Economists believe that younger Americans are missing the boat on homeownership, and will fall behind previous generations when it comes to finances.
“The last few years have been an opportunity to make equity and grow wealth, but it’s not too late for millennials,” Friedlander said.
Underwriting standards for loans are easing somewhat, which could allow more to qualify for a mortgage. Lawrence Yun, chief economist of the National Association of REALTORS® notes that FHA loans require only 3.5 percent down – or translated to about $8,750 on a $250,000 mortgage.
Younger homebuyers who welcome the idea of a “starter home,” like previous generations did, may find more opportunities to enter the market than continue to wait until they can buy their dream home, Yun says.
“Maybe they need to lower their expectations of what that first home should be or settle for a smaller home in a different neighborhood,” Yun says.