Boomer Parents, Millennial Children and Housing Futures

BCR Wealth Strategies |

Here’s what boomer parents need to take into consideration to advise their millennial children. 

The housing market is going strong right now.  There are a few recent developments that have increased the demand for homes.  One is owners wanting to provide space for work at home and another is wanting more space for increased family time at home.  This includes the addition of backyard entertainment, like outdoor kitchens, water features and swimming pools.   

Housing data from Nobel Prize-winning economist and Yale professor, Robert J. Schiller, shows from 1890 to 1998, the real return of housing, after inflation, was roughly 0%.  Housing prices kept up with inflation but did little more.  Then things changed in 1998 when housing returns began an unprecedented rise, peaking in 2006, crashing to a bottom in 2012 and then rebounding and being fueled by the economic and financial factors. 

The question is how likely will the investment returns on housing enjoyed by Baby Boomers continue for the next 20 plus years for their Millennial children to earn similar investment returns.

Studies show that there is more relocation now due to more flexible work arrangements that includes going to an office less frequently, if ever.  People are migrating from large cities to surrounding suburbs and even distant small towns. 

All this increases the residential real estate transactions.

Millennials accounted for 38% of home purchases in 2020. The median age of the typical home buyer is 34.  Current economic and financial factors are making home buying easier right now.  The major reasons are:

  1. Ease of credit
  2. Low mortgage rates
  3. Small down payments
  4. Dual income households

Alternatively, these same 4 factors inflate housing prices as buyers have access to credit, the low mortgage rates, and small down payments, along with dual incomes fuel home buying.   This increase in home buying increases the competition among purchasers and drives housing prices higher.  For example, lower interest rates mean there are more potential buyers and buyers can afford to purchase a more expensive house. 

When the economic and financial factors are not so favorable for home buying it is expected that house prices will slide lower. 

It is not probable that interest will continue to move lower or that down payments will decrease further.

Experts who have studied housing trends for years, project that housing will not provide similar future returns that Baby Boomers enjoyed in the past.

This information is not intended to influence millennials to not buy a house.  This information can be used to make a prudent and reasonable purchase of a house that provides the home features one wants to enjoy with the realization that it is unlikely to provide the investment return boomer parents received. 

When advising a millennial, make sure you not only remember how you got where you are but factor in changes from when you were their age to now.  Most Boomers had housing success, but it wasn’t because they bought starter homes out of college and flipped them every few years.  Historic timing when they owned and wanted to get out of their primary family home made a significant impact.  Remind millennials that balancing the investment in a house with saving and investing in a well-diversified stock portfolio supports the best odds for a flourishing financial future.