Stop me if you’ve heard this before: Millennials have gotten screwed by the housing market.
The lack of affordable homes is one of the biggest reasons for the generation’s economic shortcomings — why they can’t catch up to their parents financially, live in cities near their friends, or even have as many kids as they want to. Several suspects have been blamed for this, including house-hoarding baby boomers and greedy corporate landlords. But the main issue was timing: A huge number of millennials reached their prime homebuying years after the 2008 financial crisis, right as the housing-market bust was pushing builders to cut back on construction. When it came time for millennials to claim their share of the American dream, the homes simply weren’t there.
While the country’s housing shortage, now measured in the millions of units, seems intractable, there are growing signs that it may not be a permanent state of affairs. Sure, lots of people have struggled to become homeowners over the past few years, sending prices to record highs and deepening the housing crunch. But population forecasts for the coming decade suggest a monumental shift is on the horizon. And millennials, after finally lifting themselves onto the homeownership ladder, may wind up with the short end of the stick yet again.
There’s no denying that Americans are getting older. Slower population growth over the next decade and beyond, with more deaths and fewer births, will mean weaker demand for housing. This slowdown could come to a head in the 2030s, when members of Gen Z — a slightly smaller cohort than millennials — take over as the primary contingent of first-time homebuyers. Baby boomers will simultaneously be aging out of the market (economist-speak for dying), freeing up millions of homes nationwide. Unless immigration picks up dramatically to compensate, the combination of more supply and less demand could cause home prices to flatline or even drop.
Don’t get me wrong: Cheaper housing is a good thing. But while a dip in home prices probably sounds like a godsend to the millions of renters hoping to become owners, it could be devastating for those who bought a place in the past few years. These homeowners, mostly millennials, are counting on their properties to grow in value and deliver a hefty financial return — the gilded path enjoyed by baby boomers. Like generations before them, millennials have tied up most of their wealth in their homes, which they’ll rely upon to fuel their retirements or fund the purchases of bigger places down the line. Instead, when it finally comes time for them to sell, they may find that their nest eggs have turned out a lot smaller than they’d hoped.
Population trends, unlike the constant ups and downs of the economy, follow a steady drumbeat: People grow up, settle down, and eventually die. Demographics can’t tell us exactly how many homes we’ll need in a decade or two, but they can offer a pretty good idea. Builders and policymakers, however, haven’t been great at reading the tea leaves. A recent paper from a team of researchers led by Dowell Myers, a demographer at the University of Southern California, argues that the lever pullers who control the housing supply have been out of touch for decades, relying on old data or focusing too much on the short term at the expense of the more distant future.
Take the current housing crunch. For years, demographic forecasts made it clear that a huge chunk of millennials would be looking to settle down in the late 2010s, signaling a need for a lot more houses. But homebuilding activity in 2011 dropped to its lowest level in 60 years, and credit availability tightened, making it harder to get a mortgage and creating more pent-up homebuying demand. Cue tough times for millennials.
But some real estate experts are starting to pay more attention to the underlying realities. I recently had lunch with Nik Shah, the CEO of Home.LLC, a housing analytics, consulting, and AI conglomerate. Shah and his team have gained prominence over the past few years for accurately predicting changes in home prices despite a tumultuous market. I was surprised, then, when instead of talking about the coming months, he mostly wanted to discuss the long term. Shah told me he’s bullish on home prices for the next handful of years, forecasting mild year-over-year increases. But based on the demographic data, Shah expects home prices to stall out in the 2030s.
“Demographics play a critical role in home prices,” Shah says. “And right now, the future projections on demographics are not rosy.”
The biggest factor is deaths. In the coming decade, baby boomers will begin “aging out of the market” in droves. The size of the generation’s adult population is second only to millennials, with roughly 66 million members who range in age from 61 to 79. But their numbers are projected to shrink by about 23%, or 15.6 million people, in the next decade, and by another 23.4 million people from 2035 to 2045. Boomers own about 41% of real estate nationwide, worth roughly $20 trillion, per the Federal Reserve. Their exodus will represent a sea change in the housing market.
The future projections on demographics are not rosy.
All those boomer deaths, combined with a slight decline in birth rates over the next two decades, will work out to slower population growth. The result will be a lot less demand for homes. Data from the Harvard Joint Center for Housing Studies indicates that the total number of households in the US is expected to increase by 8.6 million over the next 10 years. In the past three decades, that figure ranged from 10.1 million households, in the 2010s, to 13.5 million, in the 1990s. From 2035 to 2045, household growth is expected to retreat even more, to a net increase of just 5.1 million, which would be the lowest growth rate in a century.
With more deaths and fewer births, the total number of US-born people in the country will shrink. The trajectory of the country’s population, Daniel McCue, a senior research associate at the center, wrote in a report, will therefore be “entirely dependent on future immigration.” Those household-growth projections from the Census Bureau assume that net immigration holds steady at 873,000 people a year for the next decade, roughly in line with the past 30 years. But even if you assume significantly higher immigration, McCue tells me, household growth is expected to decline over time.
The next generation of new homeowners won’t represent a steep dropoff in demand. Harvard JCHS estimates there are now roughly 68 million Gen Zers, aged 16 to 30, compared to 68.8 million millennials. McCue says the real problem comes from the other end of the population equation, since a steady handoff to Gen Z homebuyers won’t offset the wave of boomers exiting the housing market.
“It’s not going to be enough to keep up with the pickup in losses, because the baby boomer generation is just so much bigger than previous generations,” McCue tells me. “The pickup in mortality is going to outpace that.”
Given the shifting demographics, the center says America probably needs to build about 11.3 million homes over the next decade and just 8 million new units between 2035 and 2045 to keep up with demand from new households (not factoring in the current shortage). These are fairly modest goals — in the 2010s, which included the weakest years for new construction in more than half a century, builders still finished almost 10 million units. In the 2000s, they built 17 million. As demand for homes slows down, McCue says, construction should have a chance to catch up.
That possibility should sound tantalizing to anyone hoping for an end to our housing shortage. But the imbalance between supply and demand has fueled an extraordinary run-up in home values — if that lopsidedness goes away, millennial homeowners may not see the same financial windfalls as their predecessors.
Millennials aren’t young upstarts anymore. In 2030, they’ll range in age from 34 to 49, according to Pew Research’s cutoffs, which means many will be looking to move up the rungs of the housing ladder as they buy their first places or upgrade to bigger homes. They’ve already made up considerable ground in this department, with more than half the generation now owning their homes. For these fortunate millennials, the past few years of home-price gains have padded their net worths and contributed to a sunnier financial outlook.
The extent to which we’re going to start losing households was very eye-opening. I think we still need to get our heads around the implications of that.
While things are looking up, that may not last. A slowdown in home-price growth, or even outright declines, could leave a large chunk of millennials in a weird spot. Sure, for those who don’t yet own a home, a breather in home-price appreciation could offer a chance to play catch-up. But among the millennials who are actually doing pretty well financially, most wealth is tied up in real estate and retirement accounts. An analysis by the Federal Reserve Bank of St. Louis suggests that from 2019 to 2022, the typical person born in the 1980s, otherwise known as an elder millennial, saw the value of their assets balloon by a whopping 57.3%, even after adjusting for inflation. Most of that increase — 41 percentage points — came from real estate.
So let’s say household formation slows down as expected, relieving some of the pressure on home prices to keep going up, up, up. The team at Home.LLC projects that in this scenario, even if immigration holds steady, home prices will stay flat, maybe increasing by about 1% in some years and dipping slightly in others. That’s a long way from the kind of market crash we saw in 2008, but it would mean far less wealth gains for today’s millennial homeowners.
To illustrate this tension, compare a hypothetical baby boomer with a hypothetical millennial. Each buys a $300,000 home during their heyday. The boomer bought the house in 1994. Thirty years later, it’s fully paid off and sells for about $1.21 million — a stunning gain of 305%, based on the typical home-price appreciation in the US over those decades. The millennial buys the house in 2010 and also holds on to it for 30 years. Its value grows by 2.5% each year from 2025 to 2030 and by just 0.5% a year from 2031 to 2040. The home ends up being worth about $813,000, a 171% increase. That’s nothing to sneeze at, but you’d take the boomer’s gains any day of the week.
“Obviously, the difference is pretty huge,” Sid Samant, Home.LLC’s lead economist, tells me.
But even the elder millennial in this example is lucky, because they got to ride out the historic home-value increases from the the pandemic. In Home.LLC’s model, someone who bought a house in 2022 — say, a millennial who finally found their foothold in the housing market — would see their home’s value increase by just 31% through 2040.
Forecasting home prices a decade from now is a fraught endeavor. Nobody expected baby boomers to stay in their homes as long as they have, throwing the housing market out of whack for everyone else. For policymakers, immigration is the easiest lever to pull in counteracting demographic realities, which also makes it the biggest question mark. And there’s no way of knowing how future changes in the economy will alter construction activity or the homebuying calculus.
But demographic change is inevitable. And even McCue, the Harvard researcher who lives and breathes this stuff, is still wrestling with the downstream effects of our aging population.
“The extent to which we’re going to start losing households was very eye-opening,” McCue tells me. “I think we still need to get our heads around the implications of that.”
If the housing shortage does indeed go away, it will hardly be mourned. But any big shift usually comes with some collateral damage. In this case, it could be homeowning millennials who get burned.
James Rodriguez is a senior reporter on Business Insider’s Discourse team.
The post Millennials are finally buying homes. It may not pay off for them in the long run. appeared first on Business Insider.
