Recent research indicates that younger generations are losing faith in the traditional American dream of owning a home, turning instead to riskier investments and more careless spending habits.
A study conducted by Seung-Hyun Lee from Northwestern University and Young-Gun Yoo from the University of Chicago reveals that housing affordability has drastically worsened over the past few decades. Their work, titled “Giving Up: The Impact of Declining Housing Affordability on Consumption, Work Effort, and Investment,” points out a significant trend where those born in the 1990s are projected to have homeownership rates about 9.6 percentage points lower than their parents.
The study further explains that as homeownership becomes less attainable for many, corresponding behavioral shifts occur. For instance, individuals start to allocate a larger share of their income and wealth towards consumption, decrease their work efforts, and dive into riskier financial avenues.
According to the researchers, renters with net worths below the median home price in the U.S. tend to rely more on credit cards, put in less effort at their jobs, and engage more with cryptocurrency markets compared to homeowners with similar financial situations.
As these behavioral patterns persist, they could exacerbate the wealth divide between those who manage to buy homes and those who abandon the idea altogether. Lee and Yoo propose offering targeted subsidies as a means to assist more youthful renters in progressing towards homeownership. They suggest that this would enhance overall well-being significantly more than providing equal assistance to everyone or focusing solely on the lowest 10% of earners.
The report underscores that when households perceive a diminished likelihood of achieving homeownership, they begin to alter their spending and investment behaviors, often making riskier choices.
Addressing the affordability crisis
Over the last few years, buying a home has become increasingly challenging for the average American. This affordability crisis began to noticeably take shape around 2020 and intensified sharply in 2021 and 2022, amid soaring home prices, rising mortgage rates, and a constricting housing inventory.
As interest rates surged, market activity remained stagnant— homeowners were hesitant to sell their properties, fearing they would lose their low mortgage rates, while potential buyers faced scarce options and elevated borrowing costs.
Daniel Hale, chief economist at Realtor.com, mentioned that it’s quite uncertain how affordability might evolve in 2026 and 2027. However, he did note a glimmer of hope: affordability has improved in the short term, with mortgage rates dropping almost 70 basis points from their highs in 2025 and about 150 basis points from the peaks seen in 2023.
