It has been long enough already since the idea that millennials don’t want to buy a home and settle down has been thrown into the press and tossed around from one infographic to another. The problem is that this opinion was circulated during or right after the late 2000’s crisis, when just the older members of the group were coming of age and the economic situation was nowhere near glorious. Yet, they were expected to get out of dorms or their parents’ basements, get a job, make a living and start a family.
Ten years later, when the seniors of the generation are approaching their 40’s and the juniors have earned their bachelor’s degrees, the story told by the housing market is a lot different, as half of homebuyers are under 36 and they tend to skip starter homes and go straight for the more expensive ones.
Reasons to put off house buying
The main reason they have put off house buying for so long could be summed up as carefulness and thoughtfulness. Millennials have leaned from their parents’ mistakes and have postponed important milestones such as getting married, buying a house and starting a family until they felt that they could really afford it.
Student loans that are still refinanced, low entry wages for some which made saving for a down payment almost impossible, high rents in important cities, all made home buying a distant dream. Overall, it can be said that millennials are a patient generation, when it comes to big decisions, they save the rush for fast-food.
How are millennials different?
They have postponed leaving their parents’ house and starting a family, all in the name of saving and being able to afford something excellent once they take the step. Studies show that 56% have saved for a down payment, just to find out that they needed more cash when taking the actual decision of buying.
This is a target group to be reckoned with, as they are the largest cohort after baby boomers. Average members are well connected, they are digital natives, used to shop around and to go to the Internet for any buying decision. The fact that they are still burdened with student debt and have less money to spend makes them shift priorities, when compared to older generations.
Although named the generation of the sharing economy, they are ready to share less important things, like transportation or working space, but are quite traditional when it comes to personal space, as 40% still consider owning a house as “very important”. When surveyed about their desires, they made it very clear that the dream home is to have a single family house near city center, an ambitious goal which requires serious finances.
1. Historically low interest rate
Millennials can consider themselves lucky when it comes to the interest rate, as this has hit a historic low, around 4,5%, with a slight tendency of increasing, without crossing the 5% threshold, giving them the opportunity to go for an average value of $200.000 for their first home with a surface of about 1.800 square feet, just a bit smaller than their parents’.
2. Midwestern cities are getting traction
The bad news is that there is a projected 3.9% increase in prices in 2017. This is just an average that goes up to 5,8% for Western cities, including LA, Sacramento, Tucson and Portland, which are becoming less desirable. The skyrocketing prices of the West will push millennials even more in the Midwest cities, including Des Moines, Madison, Columbus, Omaha, and Minneapolis, where they make about 42% of buyers.
3. Fewer low-end homes on the market
Right now, there are few homes on the lower end of the scale available, as investors don’t see the economic advantage of developing such property, which has a low profit margin. The economic crisis has had lasting echoes, making people more prudent. A result was that owners tend to spend more time in a home, from an average of 6 years going up to 10 years, thus making fewer houses available on the market. Furthermore, the houses that are within the target disappear from the market quickly, usually within a couple of days, pushing the patience limits of the buyers.
4. Repurposing real estate
As there is not enough supply of housing on the market and eligible properties are just flying off the rack, there is a growing trend of repurposing commercial or other types of spaces into residential areas. This is a good fit for millennials who are unconventional and even see this as a chic detail. The millennial buyers are not saying “no” to the American dream of white-picket fence in the suburbs either, as there is a rise in single-family homes in areas that are classified as suburban, but being under a transformational process to be enhanced with urban facilities.
5. Loose mortgage restrictions
The market has become more relaxed, almost forgetting the post-crisis restrictions. It is now easier than ever to get a mortgage and millennials are taking advantage. An emerging trend is represented by jumbo loans for homes priced over $ 417.000. Available for clients with excellent credit scores, high incomes and excellent job security, a definition of the millennials in top sectors like IT. Some even take it to cover a consolidated student loan and get their dream home too.
Political changes and the real estate market
The political changes brought by the presidential elections could have a significant impact on the housing market. First, the limitations on immigrants can be felt in the structure of the labor market. Secondly, the tax cuts for the wealthy could trigger even more demand for expensive properties, moving away the developers’ interest for entry level properties. Lastly, the discussion to cu mortgage interest deduction
Although this is one of the best times in history to buy a home and start a family, millennials are not rushing head first into a 30 year commitment of any type. They still want to own a home, but do so in their own terms, seeking affordable options, using technology to compare variants in real time. The take-away here is that this generation values property and privacy just as much as their parents and will be an important part of the housing market; they just took their time to gather the necessary money to finance their big dreams.
Overall, this could be the generation that helps less developed areas flourish by putting precaution and living within your means above social pressure.