The Millennial generation, those born between 1981 and 1997, makes up the largest generation in U.S. history. A vast majority believes that buying a home is a good financial investment. Yet, according to a study by the non-profit Urban Institute, millennials are less likely to be homeowners than Baby Boomers and Gen Xers when they were the same age.(1)
We asked local real estate experts, Ron Greenwald and Patti Gerke, of Compass, to shed light on the factors impacting millennials with regards to home ownership, both nationally and locally.
Tight inventory and higher housing costs have kept many young potential buyers out of the market. Moreover, student loan debt and high rents make saving for a down payment difficult.(2) Student loan debt can negatively impact the affordability of home ownership. A 2017 survey by the National Association of Realtors found 83% of non-homeowner respondents said education debt has delayed them from buying a home.(3)
Saving for a down payment is also more difficult for millennials who are burdened with relatively higher rents. Since the financial crisis in 2008, more people are renting and rents are generally higher. The same study by the Urban Institute found that the number of households spending more than 30% of their income on rent is higher than ever.
Another hurdle is the shortage of available housing on the market for sale. According to Greenwald and Gerke, there’s currently less than two months’ supply of housing inventory for sale. Typically, there is about six months of inventory at any given time. However, the senior population is living longer and staying in their homes longer. More often, they desire to "age in place." This means fewer homes are hitting the secondary market for sale.
Record low mortgage interest rates are also fueling demand for housing and causing some home prices to rise. A short supply combined with rising prices has shut many millennials out of the housing market. It’s not unusual to hear stories of millennial home seekers being frustrated by the lack of affordable homes. Some homes in desirable parts of California are selling quickly for all cash and more than the asking price. These are factors that millennials are not generally in the financial position to compete with.
Despite these challenges, many still feel the urge to purchase their own home. A 2018 NAR report pointed out that millennial buyers make up about one-third of all home purchases. According to Greenwald and Gerke, from a long-term perspective, homeownership is still attractive for many reasons. If parents or grandparents are concerned about helping to make their younger generations homeowners, they can incorporate such goals into their financial and estate planning.
So, here are a few things for potential millennial home buyers to keep in mind:
Interest rates are at historic lows, increasing the affordability of a home.
Some mortgage programs might not require 20% down payment. Some may require 10% or less, meaning you may be able to reach your savings goals faster.
Owning your own home allows you to build up home equity over time. Home equity can be a significant factor in a household’s total wealth.
The bottom line is that each individual homebuyer should consider their own specific personal and financial circumstances. We recommend that you consult a licensed real estate professional. Their knowledge of the housing market and available financing programs can be a real plus when taking the important life step of buying your first home. Ask us for references to experienced professionals we know and recommend.
Many thanks to Ron Greenwald, MBA, SRES, and Patti Gerke, MBA, SRES, CRS of Compass for their assistance with this article.
Sources:
1. Millennial Homeownership – Why is it so low, and how can we increase it? By Jung Choi, Jun Zhu, Laurie Goodman, Bhargavi Ganesh, and Sarah Strochak. Urban Institute’s Housing Finance Policy Center, July 2018. https://www.urban.org/research/publication/millennial-homeownership
Here at Greenwald & Gerke, we always have your safety in mind. If you are a senior or have a senior in your life that you care about, call us now to maximize the joy in their life: (844) 782-9674.
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