Millennials who put off homeownership may be severely curtailing their ability to build wealth over their lifetimes, warns a new report from the Urban Institute. Buying a home at an early age offers a “big bang for their housing buck,” concludes the report’s authors, Hyun Choi and Laurie Goodman.
Researchers tracked individuals since 1968 to identify those who reached age 60 between 2003 and 2015 and how homeownership has affected their finances. Of those now in their early 60s, individuals who had purchased their first home between the ages of 25 and 34 had a median housing wealth of $150,000, while those who waited to buy until they were between 35 and 44 had $72,000 less. Those individuals who did not buy until 45 or older had median wealth of at least $100,000 less than those who purchased between the ages of 25 to 34, according to the study.
Those who purchased their home at the youngest ages—before 25—had the second largest amount of equity, at a median of $130,000, according to the study. Researchers said they likely didn’t have the most equity due to their younger age and because they had lower incomes and less education at that point in their lives. But those who purchased at younger ages still tended to have the largest returns on their initial investment, the report showed.
The differences in housing wealth among the age groups is due to home appreciation and paying down their mortgage debt, the researchers note.
Half of the older adults in the study’s sample bought their first home between ages 25 and 34; 27 percent purchased their first home before age 25. That is much higher than today’s generation: In 2016, 37 percent of those between the ages of 25 and 34 owned a home, as did 13 percent between ages 18 and 24.
The delay in homeownership for millennials could have long-term economic consequences. Equity is usually the largest single source of personal wealth. “While people make the choice to own or rent that suits them at a given point, maybe more young adults should take into account the long-term consequences of renting when homeownership is an option,” the researchers note in the report.