Millennials and other first-time home buyers have been hit particularly hard by one of the most expensive housing markets in U.S. history.

Early in the COVID-19 pandemic, high demand driven by low inventory and even lower interest rates sent home prices skyrocketing. Many millennials lost bidding wars to wealthier buyers while others were simply priced out of the housing market.

Now, inflation—along with higher interest rates designed to curb it—has made homeownership even less attainable.

According to a recent survey of 1,000 millennials looking to buy a home in the next year, 92% said inflation has changed their home-buying plans. More than 1 in 4 said it has delayed their search.

Nearly a quarter of millennials plan to buy a home with a price tag higher than the national median ($455,000), and 38% anticipate maxing out their budget to do so. More than 60% say they plan to put down less than 20% on a home (up from 34% in 2022).

After years of underbuilding, home builders are focusing on more expensive homes, which now comprise a higher share of available houses. Not one newly built home sold in November 2022 was under $200,000. Not one.

But soaring home prices and high interest rates aren’t the only factors working against first-time buyers. Despite increasing vacancy rates, rents are rising faster than wages, making it difficult for millennials to save money for a downpayment.

More than half (54%) of the millennials surveyed have less than $10,000 in savings, and 46% have $10,000 or more in debt.

“We have a whole group of Americans who can’t afford homes, and that’s happening right as millennials are coming of homebuying age,” said Redfin CEO Glenn Kelman.

“The only solution is for prices to fall,” he continued. “We could see that as a calamity—I know it affects homeowners, and I am one of them—but at the same time, we have to make room for the next generation to be able to buy a home.”

While the housing market does seem to be slowing, a drastic drop in home prices isn’t likely anytime soon.
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