Why Is Home Ownership Unattainable for So Many Young Americans?

Written by: Jack Manley and Sahil Gauba

Following the pandemic, median home prices surged by double digits until peaking at the end of 2022. While prices are down roughly 12% since then, home affordability still sits at multi-decade lows. With home prices at nearly six times the median household income, the dream of homeownership is increasingly out of reach. Many are wondering why.

One of the primary drivers behind this crisis is the rise in interest rates. To curb inflation, the Federal Reserve raised its policy rate to a multi-decade high; mortgage rates in turn more than doubled compared to pre-pandemic levels. Furthermore, high interest rates have, counterintuitively, kept home prices high by limiting the supply of homes for sale. With roughly 90% of all American mortgage debt concentrated in fixed rate instruments, those who purchased their homes before the Fed started to tighten monetary policy have been “taken hostage” by ultra-low rates. In fact, of the roughly 130 million occupied housing units in the U.S., fewer than 5% were moved into in 2021 or later.

Sluggish home construction has aggravated the situation. New housing starts are only modestly above historical lows, barely meeting long-term demand and failing to close the gap in supply.

Demographics have further exacerbated this issue. Homeownership among Baby Boomers is robust, with Americans aged 60 to 75 years old owning 30% of total housing stock; this figure has increased nine percentage points since 2007. Millennial home ownership is less impressive, with Americans aged 25 to 40 years old owning 21%; this figure has decreased modestly over the same time period. This dispersion is even more pronounced for larger homes.

The outcome of all this is that many young would-be homeowners are priced out of ownership and pushed to rent. In fact, in the 12-month period ending in 1Q 2024, the growth of housing units occupied by renters outpaced the growth of units occupied by owners, despite accounting for only a third of the housing stock. Of all rented units, 36% are taken by Millennials, compared to Baby Boomers, who take up 23%.

Looking forward, a combination of increased building activity, lower interest rates and an aging population should increase housing supply and improve home affordability. In the meantime, though, younger Americans would do well to build wealth through other assets, using a diversified portfolio of stocks and bonds. 

The majority of large homes are owned by Baby Boomers

Share of three-plus-bedroom home ownership, by demographic

Source: American Housing Survey 2021, U.S. Census Bureau, J.P. Morgan Asset Management. Data are as of May 7, 2024. 

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