Urban Institute, November 12, 2018: Buy young, earn more: Buying a house before age 35 gives homeowners more bang for their buck
Using the Panel Study of Income Dynamics (PSID), a dataset that has followed US individuals since 1968, we tracked people who reached age 60 between 2003 and 2015. The PSID switched to a biannual survey in 1997, so we used information at age 61 for those who were not surveyed at age 60.Today’s older adults became homeowners at a younger age than today’s young adults. Half the older adults in our sample (bought their first house when they were between 25 and 34 years old, and 27 percent bought their first home before age 25. But only 37 percent of household heads ages 25 to 34 and 13 percent of those ages 18 to 24 owned a home in 2016.
The impact of these earlier purchases is significant. Those who bought their first home between ages 25 and 34 have the greatest housing wealth by their sixties. At age 60 or 61, their median home equity (in 2015 inflation-adjusted dollars) is close to $150,000. Those who bought their houses later have significantly lower housing wealth. Ten years of appreciation alone can make a big difference. There is a $72,000 difference in the median housing wealth of those who bought their first home between ages 25 and 34 and those who waited until they were 35 to 44. If they wait until they are 45 or older, the median wealth is more than $100,000 lower.
The analysis shows that those who bought their first home earlier are financially better off in their sixties. This suggests that deferring home purchases could have long-term economic consequences for millennials and the nation’s economic well-being. As people age into retirement, they rely more heavily on their wealth rather than their income to support their lifestyles. Today’s young adults are failing to build housing wealth, the largest single source of wealth, at the same rate as previous generations.
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.