The housing struggles of millennials, though frequently discussed, continue to paint a gloomy picture. It seems that millennials have a legitimate reason to feel aggrieved, given their consistent challenges in the housing market, with baby boomers consistently emerging as the victors. Even one of Wall Street’s major investment banks, Bank of America (BofA), seems to concur.

The Wealth Transfer Phenomenon

Bank of America Research strategists, led by Ohsung Kwon, revealed a significant “massive wealth transfer from the public to the private sector.” This phenomenon, they argue, has two primary drivers: the increase in government debt from 31% of the gross domestic product to 120% between 1980 and today, and the shift in 10-year treasury yields, which went from 12% to 4.6% at the time of writing (currently sitting at 4.9% as of the latest data). The result? Household wealth has skyrocketed from $17 trillion to an all-time high of $150 trillion.

Boomers Emerge as Winners

The primary beneficiaries of this substantial wealth transfer are the baby boomers, particularly in the housing market. As per BofA, both baby boomers and the “traditionalist” generation hold two-thirds of the total net worth, with boomers alone controlling over half of the wealth, primarily in financial assets, including real estate.

Boomers Capitalize on Mortgage Rates

Boomers have capitalized on their housing investments by locking in low mortgage rates over the years. When they initially entered the housing market in the 1980s, mortgage rates were exceedingly high, reaching nearly 18% as the Federal Reserve, under Chair Paul Volcker, aimed to combat a 14% inflation rate. However, boomers have had ample time to refinance their mortgages as rates gradually declined, leaving the majority of them with mortgage rates lower than the current market rate.

In contrast, millennials have faced a mortgage rate shock. Despite the low rates during the pandemic-driven housing boom, rates have surged significantly, reaching 8%, the highest in over two decades. Presently, the 30-year fixed rate hovers just below 8%. BofA highlights this by stating, “Everyone locked in 3% mortgage rates, except Millennials.” This situation has led to a 20% increase in mortgage debt for millennials since 2021.

Challenges for Millennials

Millennials find themselves in a precarious position due to a mortgage rate shock, limited housing supply, and soaring home prices. Notably, homeownership rates are notably lower for younger generations, with those under 35 representing less than 40% of homeownership by age group. Moreover, affordability has significantly decreased since 2021, exacerbated by the rapid increase in mortgage rates and persistently high home prices.

Boomers vs. Younger Generations

Boomers appear to be less affected by higher rates and are, in fact, thriving. Bank of America’s data reveals that boomers and the traditionalist generation are the only groups increasing their consumption, constituting 40% of total consumer spending. Conversely, younger generations are grappling with the impacts of higher interest rates, resulting in reduced spending and higher credit card delinquency, particularly among younger millennials aged 30 to 39.

Despite facing housing cost challenges, millennials are increasing their spending on housing, potentially due to the rising cost of homeownership. It’s possible that the next significant wealth transfer is underway, with housing, especially luxury housing, standing to benefit.

Conclusion: The Disparity Persists

As the housing market continues to evolve, the disparities between generations persist, with boomers holding a more advantageous position and millennials grappling with the challenges of homeownership and mortgage rates. The implications of this wealth transfer are far-reaching, affecting not only the housing market but also broader economic trends.