- Gen-Xers have a loan-to-value ratio of 70 percent -- only 6 percentage points lower than millennials -- when they should be closer to baby boomers' 45 percent ratio.
Gen-X and millennial homeowners have comparable levels of equity, despite Gen-Xers’ considerable head start.
According to Zillow’s Home Equity Report, Gen-X (aged 35 to 50) bore the brunt of the fallout from the housing crash, while millennials have benefited from rapid home value growth over the past few years.
For example, the average millennial owes the bank 76 percent of their home’s current value, and the average Gen-Xer owes about 70 percent. Meanwhile, baby boomers (aged 50 to 65) have a loan-to-value ratio of about 45 percent.
Theoretically, Gen-Xers’ loan-to-value ratio should be closer to that of baby boomers, not millennials.
“Roughly half of American wealth is held in home equity,” said Zillow Chief Economist Dr. Svenja Gudell in a statement.
“Paying off the home mortgage is a key step toward retirement for most Americans, and it’s clear from these results that Generation X is further from that goal than older generations because of the Great Recession.”
“The good news is that home values are still growing relatively fast in most places, building up home equity for homeowners who rely on the investment they’ve made in their home,” she added.
Why are they behind?
Gudell says Gen-Xers are lagging behind in amassing equity because they came into their prime “buying years” in 2007 — right as home values began to drop at an average of 22.9 percent.
The decline in home values meant they couldn’t build enough equity before the housing market started going downhill, and many Gen-Xers ended up being “underwater” on their homes.
Playing catch up
Thanks to growing home values, Gen-Xers have been able to catch up since then. Millennials have benefited from robust home values as well, even while facing fierce competition because of low inventory.
Although most experts would agree the housing market has mostly recovered, some Gen-Xers are still behind millennials when it comes to building equity because their area’s home values haven’t rebounded.
In Baltimore, Gen-X owners have a loan-to-value ratio of 79 percent — 9 percentage points higher than the national average for that generation. In Chicago, where home values are still 15 percent below the highs reached during the bubble, Gen-Xers have a loan-to-value ratio of 77.3 percent.
On the other hand, Gen-Xers in California are benefiting from skyrocketing home values. In San Jose, Gen-Xers have a loan-to-value ratio that’s in line with baby boomers’. In San Francisco, Gen-Xers aren’t too far behind their neighbors to the South with a loan-to-value ratio of 51.4 percent.