How millennials are transforming the American dream

Screen Shot 2014-12-10 at 12.53.41 PMBy: Marika Bastrmajian

Millennials, those born between 1977 and 1995, have been putting off the American dream of home ownership for a later time, opting to focus on their careers and education first.

Comprising the largest generational cohort, millennials are effecting significant change within the housing industry.

Newlyweds Shai and Samantha Dobrusin, both 26, say purchasing a home and planting roots is an important part of their future, but that decision was put off as Samantha Dobrusin concentrated on her graduate degree.

For now, the couple is renting an apartment together in Lincoln Park.

“I was renting, my lease ended in May, and we both were without a lease or any prospective properties to purchase” after their wedding in August, Shai Dobrusin said. “So we decided to lease for a year, probably renew the lease for another year and then reevaluate whether we want to purchase a home.”

The Dobrusin’s are not alone. Since the Great Recession, which began in 2007 with the bursting of the housing bubble, millennials, also known as Generation Y, have lost faith in the housing industry.

“There is this sort of delaying some of the pieces of the home ownership equation because of economic reasons,” said Peter Burley, a certified real estate advisor and director of the Richard J. Rosenthal Center for Real Estate Studies in Chicago. “The job market hasn’t been great, and they’re having a very hard time saving for a down payment because of student loan debt.”

In a report released by The Council of Economic Advisers for the White House in October of this year, 47 percent of 25-to 34-year olds received a post-secondary degree, making them the most educated generation thus far.

At the same time, school loan debt has reached new heights. Total outstanding student loan debt was over $1 trillion dollars as of the second quarter of 2014.

Despite the recent growth in the labor market with the addition of over 300,000 jobs in November, hourly wages have only increased 0.1 percent from September to October making for a weak “comeback”. The slow growth in wages, coupled with high student loan debt is problematic for millennials seeking to qualify for a home loan and come up with a down payment.

With the burden of so much debt hovering over them and weak wage growth, many millennials, who would otherwise be first-time homebuyers, are being left behind.

But things may be changing.

Fannie Mae, the leading source of residential mortgage credit in the U.S. secondary market, announced on Monday an option for qualified first-time homebuyers to enter the market with a down payment as low as 3 percent. The 97 percent loan-to-value option will give access to credit for qualified first-time homebuyers who may not have the funds for a large down payment.

“Our 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage,” said Andrew Bon Salle, Fannie Mae executive vice president, in a press release.

This new offering may help initiate a boost past the 42 percent home ownership rate for millennials, compared with 65 percent for the U.S population as a whole, according to a study conducted by Redfin Research Center.

What real estate experts don’t know for sure is whether lower barriers to homeownership will have the desired effect, given that young millennials have gotten used to renting, rather than buying, a home.

Strong demand for rentals helped push monthly rental rates in Chicago up 5.9 percent in November compared with a year ago, according to online residential real estate site Trulia.

David Parleir, associate broker with North Clybourn Group, a real estate firm specializing in residential real estate, added that this generation is more concerned with gaining access to things rather than owning them.

“Divvy bikes are an example of that,” Parleir said. “They would rather pay the fee to have access to a bike whenever they want and not the responsibilities of taking care of the bike.”

Some surveys point to pent-up demand for homeownership, however. Redfin polled millennials in August and found that 92 percent who are not current homeowners say they do plan to purchase a home in the near future.

With record low mortgage interest rates and stable home prices in most of the country, Burley said he expects a “fairly strong housing market” in the next five years.

“I would expect after the next year or two, relatively normal [home] price growth, which is usually in the 5-6 percent rate, and I would also expect the loosening up on the credit side to generate more demand,” Burley said.

Priscilla Lee, 27, a clinical staff pharmacist at OSF Saint Anthony Medical Center in Rockford, Illinois, 90 miles northwest of Chicago, recently closed on a two-story duplex in Rockford.

“My student debt is so high but they looked at my monthly payments, and it’s only because I make a good amount [of income] that I qualified,” Lee said.

The tax benefits of home ownership also appealed to her. Mortgage interest payments and real estate taxes may be deducted from income tax for taxpayers who itemize their deductions.

“I have a nice place to live and I’m not getting taxed as hard, and if I ever move I’ll just rent it out,” Lee said.