Millennials going deeper into debt to buy homes, study finds

Family in front of home

Older millennials have a strong presence in today’s real estate market; they’re buying homes, they’re getting mortgages. But unlike their Generation X and Baby Boomer predecessors, millennials are taking on significantly more debt to do so.

According to a new analysis of mortgage origination data from Optimal Blue by, millennials, many of whom are already burdened by student loan debt, are buying homes and starting families in an economy where home price increases have generally outpaced wage increases. This, combined with the fact that there are fewer starter homes on the market, led many millennials to purchase higher priced homes and thus take on larger mortgages. 

It’s not all bad, however. Millennials may be taking on more debt in order to achieve their dreams of homeownership but their debt-to-income ratios haven’t increased much. According to, in October 2015, the average DTI ratio of a millennial mortgage applicant was 37%. In October of 2017, it was 38%. This is a good sign that household incomes for millennials have improved. Still, the ideal DTI ratio is at or below 36%. Until the average millennial DTI ratio reaches that point, we have to conclude that overall, real estate prices continue to outpace wage growth for adults in their late 20s-mid 30s.

As home prices have gone up, so has the median purchase price, says

“Millennials were getting mortgages on homes with a median purchase price of $237,000 in September 2017, while Generation Xers (born between 1965 and 1981) were buying homes with mortgages on a median price of $280,000,” an article from states. “Baby Boomers (born between 1946 and 1964) fell between them, at $258,000. However, millennials are narrowing the gap in purchase price with other age groups.”

Millennials are also buying a greater share of homes across all price tiers (among those who are buying a home with a mortgage). Millennials are buying the most starter homes priced below $200,000 and are buying the most low- to middle-tier homes priced between $200,000 and $350,000. This may have a lot to do with the fact that there are simply fewer starter homes on the market, but it could also point to the trend of millennials choosing to skip the starter home altogether and go straight for the larger home.

Interestingly, if the current trend continues, the report suggests that millennials may also outpace Generation Xers in buying middle- to upper-tier homes priced between $350,000 and $700,000. Also worth noting, millennials continue to lag far behind Generation Xers in buying high-end homes priced above $700,000; however, they just surpassed Baby Boomers in that price category during the summer of 2017.

Millennials are also making strong down payments on homes, according to the report. In fact, millennials are putting down almost as much, percentagewise, as Generation X home buyers, and have been for quite a while. The average down payment for mortgages originated for millennials is 9.1%, which is only slightly lower than the four-year high of 9.4% in October 2014. Members of Generation X had been making an average down payment of 11% on their mortgages since early 2013.

So does this mean that despite taking on more debt, millennials are doing OK when it comes to home buying?

“The important metric is looking at down payment percentages and debt-to-income ratios, and the fact that those have been pretty consistent for millennials is a positive sign,” said Danielle Hale,’s chief economist. “When you consider where [millennials] are in the homeownership cycle it’s reassuring that their down payments have been constant.”

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