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Residential Department: DataDecoded: November 2014



Millennials and homeownership: Aspirations versus reality

First-time homebuyers have historically accounted for about 40 percent of home sales, but the combination of rapid home-value appreciation and slow income growth has made it increasingly difficult for young adults and long-time renters to move into homeownership. Excluding the recent recession when both incomes and home values were falling, annual income growth has exceeded home-value appreciation only one-third of the time since 2000.

As a result, new homebuyers in the mid-2000s turned to leverage to extend affordability. Tighter lending standards since the financial crisis have limited the extent to which homebuyers can borrow further, however.

Renter confidence about future homeownership; Source: Zillow

Despite these headwinds, young renters are optimistic about their homeownership prospects, according to the Zillow Housing Confidence Survey — sponsored by Zillow and administered by Pulsenomics LLC — which surveyed more than 10,000 homeowners and renters in 20 metro areas this past July. The survey asked respondents about their views of the current state of the housing market, how they expect the housing market to evolve in their areas, and (among renters) their aspirations to become homeowners.

Among young adult renters age 18 to 34, more than 80 percent are “confident” or “somewhat confident” that they will eventually be able to buy a home. Young adult renters are most optimistic in places where homes are relatively cheap — notably in Phoenix and Miami. By contrast, in more expensive markets like San Jose, California, only 70 percent of young adult renters are optimistic about their homeownership prospects. Perhaps unsurprisingly, optimism about future home-ownership among renters fades as people age. Still, nearly one-third of renters age 65 and over are optimistic that they will someday buy a home.

Despite the seemingly constant media chatter about shifting societal attitudes toward homeownership, in some respects young adults are more conventional in their views of homeownership than older generations. Nearly two-thirds of young adults (both renters and owners) think that owning a home is necessary to live “the good life” and “the American dream,” and nearly half think that owning a home is necessary to be a respected member of society — higher than for any other age group. These attitudes are not limited to more traditional parts of the country such the Midwest or the South.

Still, their optimism may betray a certain degree of youthful naïveté about homeownership. When asked about their expectations for home-value appreciation over the next decade, nearly 32 percent young adults aged 18 to 34 predicted that home values would rise by more than 7 percent each year. By contrast, only 20 percent of prime working-age adults (age 35-49), 14 percent of older adults (age 50 to 64) and 9 percent of senior citizens (age 65 and up) expect a similar rate of home-value appreciation.

As the underlying drivers of housing-market activity shift away from the cash buyers and investors who have dominated some markets in recent years, more traditional fundamentals such as income growth and household formation will play an increasingly important role. Although the recent financial crisis has doubtlessly left an indelible mark on the financial attitudes (and balance sheets) of young Americans — much like the Great Depression shaped the financial attitudes of their grandparents — sooner or later life will take over as they start families, settle into communities, and (for many) buy homes.

Zillow’s Housing Confidence Survey suggests that today’s young adults will not behave dramatically different from earlier generations as life takes its course. 


Aaron Terrazas is an economic research analyst at Zillow. He joined Zillow’s industry-leading economics and quantitative modeling group in January 2014. He produces real estate data and performs econometric analysis, focusing primarily on mortgage lending and rental markets. Terrazas received his undergraduate education at Georgetown University, an M.S. in applied economics from Johns Hopkins University, and is certified in econometric forecasting from the International Institute of Forecasters. He previously worked as an economist in the U.S. Treasury Department’s office of economic policy. Contact Zillow at (206) 757-2701 or

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