Millennials Looking for Starter Homes Have a Problem: Boomers with Money

Millennials navigating their entry into the housing market have yet another hurdle to overcome. According to a report from the National Association of Realtors (NAR), members of the generation born between the mid-1990s and the early 2000s no longer comprise the largest share of U.S. buyers who are successfully closing on homes. As of Q1 2023, the baby boomers have surpassed them.

To be clear: This does not necessarily mean that boomers are the largest segment of buyers looking for homes. Millennials may still hold that position, though NAR’s data doesn’t address the question. What the data does show, however, is that this quarter marks the first time since 2014 that millennial homebuying activity—measured in closed sales nationwide—has been outpaced by that of another generation. In a year-over-year comparison of buyers across the country, NAR found that the share of baby boomers (ages 58 to 76) who purchased homes rose to 39% in 2022, up from 29% the year prior. At the same time, the share of millennials (ages 24 to 42) who bought houses fell to 28% last year, down from 43% in 2021. For millennials, this indicates a fresh wave of competition from older buyers who are more likely to enjoy material advantages over their younger counterparts in the bidding process, usually in the form of more cash on hand and existing housing equity to leverage.

"Baby boomers have the upper hand in the homebuying market," said Dr. Jessica Lautz, VP of Research at the National Association of Realtors. "The majority of them are repeat buyers who have housing equity to propel them into their dream home—be it a place to enjoy retirement or a home near friends and family. They are living healthier and longer and making housing trades later in life."

At the same time, inventory is still tightening, especially in the starter-home market. Between 2018 and 2020, the total housing-stock deficit in the U.S. saw a 52% jump, according to data from Freddie Mac. By 2021, the nation’s total inventory of starter homes (defined as those less than 1,400 square feet) had dropped to its lowest level in half a century. Today, existing single-family home inventory has sunk to roughly 870,000. Compare that to the 1.7 million homes available in June 2019, and it’s clear that first-time homebuyers seeking attainable housing face headwinds unlike anything in recent memory. While rising GDP is boosting consumer confidence in cautious increments across TTLC’s regions, there’s no ignoring the inventory problem. “We're still in a period of adjustment on a national basis, and on a micro level in regions where we are present,” said The True Life Companies COO Chris Crawford in a recent economic outlook webinar. “There are still significant housing shortages.”

The problem is exacerbated by secondary factors like pricing whipsaws in the lumber industry and increased investor interest in the starter-home market. According to data from the real-estate technology company HomeLight, in April 2021 the price per thousand board feet of lumber reached a 300% increase over pre-pandemic levels, a demand driven by COVID slowdowns at sawmills and a homebuilding boom following historically low interest rates. Prices of lumber and other building materials like steel have since fallen, but the inventory squeeze created by the unavailability of materials during that time is still rippling through the market. Homes that didn’t get built then are still needed now—a hole that will take the market some time to dig its way out of. In addition, the rise of investors interested in starter homes for their profit potential is a challenge for first-time homebuyers decades in the making, and one that shows little sign of slowing. In 2018, investors bought about 20% of all U.S. starter houses—double the number of 20 years ago, according to the New York Times and data from the consumer analytics firm CoreLogic.

As we reported last month, home prices may be cooling off, and younger homebuyers might be feeling increasingly optimistic, but the dire state of starter-home inventory paints a challenging picture for millennials seeking to enter the market. Combine that with surging competition from older, wealthier boomers and it’s clear that TTLC’s goal of creating attainable housing for first-time buyers is more important than ever.

“Homes for sale on the market now are around a million [units],” said The True Life Companies CEO Scott Clark in a recent webinar. “Clearly with COVID they went down to record lows, and peaked during the financial crisis where anybody could get a mortgage and so much financing was available. We were so long on inventory [before the crisis], but today there’s just nothing for people to buy. I do believe that’s why prices have only come down as little as they have, because you just don’t have any supply.”