Millennials, however you choose to slice the handful of decades people put them in, are beginning to reach peak homebuying age, but why are so many of them putting it off? We’ve all heard the stories of the 27-year-olds still living in their parent’s basements. So, what’s the hold-up? Is a slice of the American Dream a priority of theirs? Is geography or location a hurdle? Really, the answer can only be summed up to rapid change, something millennials go hand-in-hand with.
Barriers to Entry
There are two main reasons why millennials are holding off on becoming homeowners, one being outside of their control, and the other that’s a product of their generation. First off, the current housing inventory is very tight, which has driven up the prices on homes and made heated bidding wars commonplace, as well as rising interest rates and bigger down payments. The second is millennials have less available income than previous generations, preventing them from buying a home. There are a few main causes of this:
- Student loans: Because millennials are the most highly educated generation, their student loan debt is more than any prior to them. As reported by NAR (National Association of Realtors) nearly half of millennial homebuyers are saddled with student loan obligations. I know this news might come as quite a shock, but student loans rack up quickly and take a while to pay off. Crazy, right?
- Rising rent: Rents, on average, are rising at just under 3% annualized. This means that a good chunk of their paycheck is essentially thrown out the window every month and, if they choose to live in more expensive areas, it’ll only be less they can save up.
- Mobility: With globalization as big as it’s ever been, millennials are broadening their horizons on where they want to work. Younger millennials like the ability to move around to jobs in cities on different sides of the country and renting is the most conducive to picking up and moving with (mostly) no strings attached.
Higher costs of living and debt mean putting off a lot of the things many would consider rites of passage into “true” adulthood. Weddings are expensive, kids are expensive, homes are expensive – this isn’t anything new. It’s just that millennials have more hurdles to overcome to make it happen.
What they’re looking for and where they’re looking for it
Advances in technology have shaken up the world of real estate and lending, making the entire homebuying process more convenient and far more efficient than before. Qualifications and requirements have eased in recent years, making it easier to get a loan than it has been in the past. Homebuying has certainly been made easier for millennials than any generation before them.
Millennial buyers are looking for space and energy-efficient homes that have an emphasis on design. The ability to integrate technology into the home, storage and room for pets are also a must. Since prior generations prioritized space over use, the millennial home ideal is changing how homes are designed. Because millennials are tending to wait to buy homes, they’re skipping the traditional starter home and moving up to something bigger.
In terms of where they want to live, millennials do like cities since they’re closer to their jobs and have more activities close by, but it’s not true that they’re an entirely urban-loving generation. Nearly half of millennial homeowners live in the ‘burbs’. While they might be farther away from their jobs, the suburbs provide shared amenities and the ability to afford more of a home, which makes up for having to wait longer to buy one.
Although millennial homeownership is facing some challenges, the percentage is definitely going up despite all the barriers. Millennials' desire to purchase a home is there, and with some adaptation of the market, hopefully, it will only continue to increase. There is a plethora of loan programs designed to fit millennial’s unique financial situations, from 100% financing to low down payment options, reduced mortgage insurance alternatives. Reach out to your local Flat Branch to see what options would work best for you.
