• by Sarah Mahoney  @mahoney_sarah, April 7, 2014

While plenty of market research portrays Millennials as an affluent and free-spending generation, a new analysis from the Federal Reserve Bank of St. Louis paints a much grimmer picture. While the wealth of other generations has regained pre-crash levels, Gen Y households are struggling to catch up, regaining only a third of their net worth. And home ownership among Millennials has fallen dramatically.

The main explanation, says William R. Emmons, an economist with the Federal Reserve Bank of St. Louis, lies in the pummeling of the housing market. “Baby Boomers and other older generations had more money in stocks and investments, which recovered, while younger families had more of their wealth in their houses, which still haven’t come back,” he tells Marketing Daily.

That means home ownership levels are at their lowest levels in more than three decades, especially among Gen Y. And as a result, this demographic will be spending less on things like durable goods and home furnishings. On the surface, he concedes, that looks like bad news for marketers. “But my intuition is actually the opposite, and this might be a positive. Home ownership is not the best way to build wealth, and the risks associated with home ownership have been made very clear in this downturn, which was devastating to many young families.”

The report, published by the Fed’s Center for Household Financial Stability, estimates that the average inflation-adjusted (real) wealth of a young family was about $108,000 at the end of the third quarter of 2013. The average real wealth of a family headed by someone between 40 and 61 was about $691,000, while the average real wealth of a family headed by someone age 62 or older was about $928,000.

The kinds of homes owned by younger families were also harder hit than those owned by older Americans, he says -- noting that among Gen Y, minorities and those with lower educational levels also took more of a pummeling than others. “While middle-aged and older families have experienced notable recoveries after their own significant declines, the average value of housing on young families’ balance sheets remains about 35% below its 2007 level,” the report says.

And whether it’s because they lost homes through foreclosure or short sales or just aren’t interested, younger families are renting rather than buying in near-record numbers. After peaking in 2004 at 69%, overall homeownership has tumbled for nine consecutive years, reaching 65.1% in 2013. But among those 40 and under, “as the housing crash unfolded, the homeownership rate among young families decreased rapidly, from 50.1%  in 2005 to 42.2% in 2013.”

Student loan debt also plays a part in these young families’ financial decisions, says Bryan J. Noeth, a policy analyst and co-author. “The average student graduates with $26,000 in student loan debt, and that definitely influences their  decision about whether or not to buy a home.”