Affordability, high student debt and less loan availability are just a few of the reasons that millennials aren't buying homes at the rate of previous generations. Urban Institute reports that 37% of millennials own homes in 2015 – a full eight percentage points lower than Generation X and baby boomers at the same age. 

1. Affordability 

Buying a home won't be easy for millennials as the affordability gap continues to widen. According to the National Association of Realtors (NAR), the home affordability index for first-time buyers in 2018 dipped to 92.5. A value of 100 means that a family with median income has exactly enough income to qualify for a median-priced home. In 2015, the index was 109.3. The index is an average across the U.S., so there are areas of the country that are more affordable. The question is whether or not millennials are willing to relocate and leave jobs, friends and family in order to buy a home.  

2. Not Married (or Partnered) Yet

In 2018, less than 60% of people aged 25 to 34 lived with either a spouse or partner versus 80% in 1967. The changing dynamic of getting married and having children means that millennials are staying at home longer and delaying the purchase of their first home. The average age of a first-time mom is 26.6 as of 2016 according to the Centers for Disease Control (CDC), although the age increases for college-educated women and women in urban areas. 

Additionally, people are getting married later, with the average marriage age at 27.4 for women and 29.5 for men, according to 2017 figures from the U.S. Census Bureau. "Life events such as getting married or having children are typical triggers to buying a home. The longer this age group lives with parents or independently, the more homeownership will be delayed," stated Bank of America in a report about millennial home buying trends. (See also: Kids or Cash: The Modern Marriage Dilemma)

Later marriage and delays in having children has helped increase the percentage of millennials living at home or with relatives to 22.5% in 2018, up nine percentage points since 2005.

3. High Levels of Student Debt

In 2018, student debt in the U.S. hit $1.5 trillion and has become a burden on millennials trying to enter the housing market. That same group has also had to contend with stingy wages and raises in much of the job market, putting added strain on paying off those loans. According to the 2018 NAR report, more than 50% of homebuyers under age 36 said that student debt delayed their home buying. Apartment List estimates that while college grads without student debt need 7.6 years to save for a 20% down payment in 2018, those with debt need to save more than four years longer. (See also: Student Loans: Paying Off Your Debt Faster)

4. Tighter Lending 

Banks have tightened credit underwriting to reduce risk and have double-downed on the 20% down payment rule for homebuyers. But as house prices rise, it is taking millennials longer to accumulate enough cash to put down on a home. "Remember that the bulk of the current 25 to 34-year-old cohort started their careers during the financial crisis and early stages of the recovery, when the economy and labor market were fragile," Bank of America noted. 

While mortgage affordability programs may offer loans with less than 20% down payments, lenders will often charge higher interest rates on these loans to offset the greater default risk. Additionally, most of these mortgages will require that millennials take out private mortgage insurance, making monthly payments even higher. 

5. The Lure of Bright Lights

Millennials continue to flock to cities. Pew Research found in 2018 that 88% of millennials live in metropolitan areas. Whether it's a social movement or the lure of greater work opportunities, millennials are moving towards regions with a higher proportion of renters compared to homeowners, pushing up rental prices in the urban centers where they prefer to live. So far, millennials seem unwilling to commute or own a backyard. According to BuildZoom, new home sales within five miles of the centers of the 10 most densely cities have exceeded 2000 levels but sales are about 50% below 2000 levels 10 miles outside the city. 

Much has been made of millennials and their spending habits in the big cities: new clothes, Amazon Prime, the latest iPhone, daily Starbucks.  However, Bureau of Labor Statistics data debunks this notion: Expenditures on apparel and entertainment fell 1.4% from 2004 to 2015. The biggest decrease in millennials' shopping basket: spending on "owned shelter," which dropped 2.6%. Meantime, spending on rental shelter had the largest increase, rising 3.2%. 

The Bottom Line

Housing prices continue to rise in the U.S. and while millennials are delaying home ownership, evidence suggests ownership is not out of reach. While some financial constraints remain – student debt and down payments – social changes in how young adults are living have pushed home ownership to record low levels and have seen the average age of millennials staying at home rise.