Would you believe that the graying generation the heart of whom spent their teens watching Rowan & Martin's Laugh-In and swaying to Bee Gees' hits as the Nixon, Ford and Carter Administrations cycled by are now buying far more homes than the Millennial crew that's long ruled the realm? That's the finding from the "Home Buyers Generational Trends" report just issued by the National Association of Realtors, based on research conducted by deputy chief economist Dr. Jessica Lautz. "The Millennials are facing severe affordability problems due to the rise in rates and lack of inventory," Lautz told Fortune. "The Boomers have the edge because they've accumulated lots of wealth, and hold plentiful equity on their existing homes for buying another."
Those strengths, she adds, empower the Boomers to pay cash for a high proportion of their purchases. Hence, it's as if America's parents poised to write the big check, no financing needed, are vying with their kids—or maybe grandkids—desperately seeking an abode in the 'burbs to raise their families, for the relatively few homes for sale.
The NAR numbers show a huge shift in share from Millennials to Boomers since late-2021
As the NAR report shows, three generational categories account for 91% of all home sales. From oldest to youngest they're the Baby Boomers, Gen X'ers, and Millennials, aged respectively 57 to 75, 42 to 56, and 22 to 41. Millennials are the largest group (87 million), followed by Boomers (76 million), and Gen X (65 million), a cohort that spanned a much briefer period than the other two, running from 1967 to 1981. For the three groupings, the NAR graphs the market shares for purchases of primary residences starting in 2013. Though the NAR's latest official figures date from mid-2022, Lautz says that the recent data she's seeing suggests that percentages in place then are roughly similar to today's.
From 2013 to late 2021, the Millennials' part of the market increased steadily from 28% to 35%, while the Boomers' portion flatlined at around 30%, and the Gen X'ers declined from 30% to 25%. But the Fed's huge, Pandemic-induced rate cuts that dropped the 30-year home loan below 3% from July 2020 to October 2021 emboldened Millennials to ramp up their purchases. During that period, all home sales soared about 20% over 2019 levels. The Millennials provided the big push. Suddenly, they could afford the monthly nut on that long-cherished cape or colonial that would have crushed their budgets a year earlier. In a matter of months, this youthful demographic's dominance leapt from 35% to 42%. The Boomers kept steadily buying as well, but didn't join in the frenzy as avidly as the Millennials, the group starting families and now grabbing those bargain home loans to attain backyards, extra space and tickets to good schools.
Click here to read more about the Great Milliennial housing regret
Starting in the fall of 2021, as the Fed famously shifted course to battle inflation and mortgage rates began their relentless rise, the position for the Millennials and Boomers suddenly flip-flopped. The Millennial slice dropped by an incredible 14 points, from 42% to 28%. The Boomers's share rebounded sharply from 30% to 39%, four points higher than its consistent level pre-pandemic. Given that Millennials outnumber Boomers by around 15%, the former are now buying at a pace that's 60% faster than the Millennials that were easily out-purchasing them for many years prior to the aftermath of the pandemic.
(The Gen X'ers lived through the Great Financial Crisis as young adults, and many lost their homes in the cataclysm that followed the housing bubble. As a result, they frequently didn't own houses when the crisis abated, and missed the opportunity to build the equity that's so enriched the Boomers.)
The Millennials are facing a huge affordability problem, while the flush-with-cash Boomers are staying strong
The Boomers' big gain in share doesn't mean that the 57 to 75 year old crowd is amassing a lot more homes. Keep in mind that total volumes for existing homes have dropped by 45% from the near-peak in early 2021, from 6.7 to 3.7 million units on an annualized basis. "The denominator has shrunk so much that the Boomers' are taking a much bigger part of a much reduced overall market," says Ed Pinto, director of the American Enterprise Institute's Housing Center. What's clear is that the Boomers are holding up far better than the beleaguered Millennials, and providing the chief force that's sent prices, greatly aided by super-low inventories, back on a positive track since hitting their lowest point in Q4 of 2022.
The plight of Millennials is hard to overstate. They're now garnering just over one-quarter of sales that still languish one-third below the norm for 2019, when this rising generation was buying 35% of all primary dwellings changing hands. "It's an unfortunate factor for the housing market," notes Lautz. "Younger Millennials are traditionally the big first time buyers. Now, that key category has sunk to its lowest levels since at least the 1980s, with just one-quarter of sales going to people making that initial purchase."
Lautz cites the multiple trends converging to stymie the age group that just two years ago led one of the strongest charges in housing history.
The biggest barrier is a shocking deterioration in affordability. On October 8, the 30-year mortgage rate hit 8% according to Mortgage News Daily, the highest number in a quarter century, and a figure 4.5 points higher than at the start of the COVID crisis. Augmenting the burden, home prices now loom 35% higher than in early 2020. Hence, the aspiring young buyers must take out much bigger home loans, at far higher rates, to acquire the same four-bedroom-with-garage as three years ago. Or, they're obligated to furnish far larger down-payments to lessen the monthly interest burden. And despite the steep drop in overall sales, inventories remain extremely low, meaning young families are battling for a small pool of listings. According to the AEI, the entire stock of houses sporting "for sale" signs, on average, sells out in a mere 3.1 months, about 25% faster than in 2019, when conditions were already tight.
By contrast, Baby Boomers often don't need a mortgage at all for a new buy. They typically harbor large savings, often swelled by the strong stock market of recent years. They've also built large equity cushions in the homes they've long owned, both via robust appreciation and paying down principal. While keeping a 3% home loan prevents older Millennials from moving up or moving at all, Boomers frequently own their manses free-and-clear or nearly so, making the oldsters much willing to sell the old place and deploy the proceeds to buy another.
Traditionally, that "sell to buy" sequence was the regular pattern. Specifically, the mid-50s to mid-70s group would downsize by trading the bigger home where they raised their kids for a condo or smaller single family abode.
But today, says Lautz, Boomers increasingly prefer keeping the house in the town or area where they worked, and securing another place in say, Cape Coral or Colorado Springs. "Today's retirees are different than past generations," says Lautz. "They're looking for a retirement property, and not just aging in place, and they're making that second house their primary residence." Then, the Boomer couple will commonly rent out their former main dwelling. "That trend means that the new purchase doesn't free a home for sale," says Pinto. "So it's another factor, in addition to people staying put to keep their low-rate mortgages, that holds inventories low."
Lautz finds a giant and under-reported disparity between the Boomers and Millennials. "About half of the older Boomers and a third of the younger ones, are paying for new purchases in cash," she says. "For Millennials, that seldom happens, the figure is something like 6%." So Millennials find themselves going head-to-head with Boomers for the same relatively puny stock of homes-for-sale. And a bidder who brings all cash to the closing has a big advantage, says Pinto: "If you're paying all cash, you go to the head of the line. In every 100 bids, the cash buyer will win a higher percentage than the candidate who need financing."
Watching their elders swoop down to grab the properties they covet is just another travail faced by Millennials. That their parents or grandparents own homes that have gained loads of value, and even made them wealthy, is a terrible reminder of the bounty and comfort that America's historical housing affordability crisis may make them miss.
