Times are tough for the millennial home buyer. The American Dream of homeownership feels very far away for many younger buyers. Is that dream still possible?
The Millennial Generation
Millennials have now overtaken Baby Boomers as the most populous generation in America. Born between the early ‘80s to mid-‘90s, millennials are now in their late twenties to early forties. They have stable jobs, a little financial padding, partners or spouses, and many are starting families of their own. Millennials are ready to get their piece of the American Dream.
The pandemic only added to millennials’ desires for homeownership. The shift away from offices and toward a work-from-home model caused many American workers to reassess their priorities. Millennials no longer need to live in crowded urban centers, close to transportation and office buildings. Instead, they need more square footage in which to live and work.
What’s Driving Millennial Home Buyers
Once touted as a generation more interested in partying than homeownership, real estate experts now see that millennials do indeed want to buy homes. They just haven’t been in a financial position to do so.
This generation waited longer than any generation before them to partner up, get married, and start families. They have fewer children, are more environmentally conscious, and are warier of taking on mortgage debt than older generations.
Now, with the work-from-home model more prevalent than ever, millennials are ready to set down roots. Their motivations are the same as those who bought homes in the past: something to call their own, a place to raise a family, and the opportunity to build wealth through real estate.
What Do Millennials Want in a Home?
There are an estimated 71 million millennials in America. So, it should be no surprise that if you ask, “what do millennials want in a home?” you will get 71 million different answers.
No two millennials are alike. But just as with generations before them, that are some common threads strung throughout millennial home buying trends.
Millennials tend to want less “stuff” and more life experiences. As such, they are more satisfied with smaller homes and a more minimalist lifestyle. Years of renting apartments, living with friends, and having little disposable income made millennials more comfortable with the idea of owning and living with less.
This should come as no surprise, but millennials don’t want to spend half of their paychecks on a mortgage. With so many millennials still in debt, continued inflation, and stagnant wages, millennials often place affordability as a top priority when buying a home. They want to own a home while still maintaining the financial freedom to have fun.
Of course, a lower price tag often means a smaller home. But most millennials are okay with that idea. Less square footage means less energy consumption, lower energy bills, and less maintenance.
Millennials trend toward experiences over possessions. They will often take a smaller, older home if it means they have more time and money to do the things they love. Millennials, like many home buyers, also take into account a home’s location. Proximity to parks, recreation, nightlife, culture, and other activities plays a significant role in millennial home buying trends.
Millennials’ Homebuying Hopes Dashed
Despite their desire for homeownership, many millennials find it difficult to realize the American Dream. They’re facing stagnant wages, increased costs of living, and staggering rises in home prices. But in addition to all of that, they’re also competing against corporate buyers.
Corporate buyers are scooping up affordable homes at an alarming rate. Corporations saw the recipe for success with so few houses on the market and rents soaring. These companies often buy affordable single-family homes, make some minor repairs and renovations, and then rent them out for an extraordinary profit.
Meanwhile, younger buyers with little liquid cash are putting in one offer after another on these same properties, only to have their hopes dashed every time. Corporate buyers come in with cash. They offer the seller a quick closing with no inspection. When sellers have to choose between a cash deal with no inspection and a first-time home buyer with an FHA loan and the potential for costly repairs, the decision is a no-brainer.
A recent 60 Minutes episode highlighted these difficulties facing millennial home buyers.
Other Challenges for the Millennial Home Buyer
Corporate investors aren’t the only ones standing in the way of homeownership for millennial buyers. Millennials face a perfect storm of challenges that make buying a home much harder.
Millennials have now lived through two recessions, a major housing crisis, and unprecedented inflation, just as they started their adult lives. What’s more, this generation faces crippling debt.
With college touted as the epitome of success for this generation, many millennials entered higher education whether they could afford it or not. College tuitions, meanwhile, have soared, rising by 136.5% since 1999.
To pay for that college education, many millennials took out student loans. Upon graduation, they couldn’t find high-paying jobs, which made paying off those student loans nearly impossible. Instead of building wealth in early adulthood, millennials have spent their 20s and 30s digging themselves out of debt.
The pandemic only made matters worse.
At the height of the pandemic, an estimated 52% of millennials were living with their parents out of financial necessity, the highest rate since the Great Depression. While not optimal, moving home helped millennials create a financial cushion. As employment stabilizes, millennials who moved back home have paid off some of their debts, putting them in a better position to buy. Plus, there’s nothing like moving back in with the folks to make owning your own home sound even more attractive!
Traditionally, homeownership follows a predictable pattern. As older generations age, they leave their large homes, where they raised families, and downsize into smaller, more manageable homes. In the past, younger generations bought those larger homes from older owners, ready to start and raise their own families. It was a cycle that worked for years.
Now, millennials aren’t buying large homes. Instead, they are looking for smaller houses that cost less and require less maintenance. But there’s a problem: Baby Boomers want those houses, too. Boomers, however, have an entire lifetime of financial stability, home equity, and savings behind them, making them far more likely to win a bidding war with a first-time millennial home buyer.
As if millennial home buyers weren’t facing enough of an uphill battle, they’re also up against a dramatic inventory shortage. There simply aren’t enough homes to go around, especially starter homes that fall within millennials’ budgets.
The high housing demand and low supply are driving up prices and increasing competition for the few homes on the market. Some areas of the country are facing critical housing shortages. Nationwide, builders struggle to meet the demand for new builds because of labor and supply problems.
First-time home buyers with little down payment simply can’t compete when pitted against corporations and older, more financially stable buyers.
Is There Hope for the Millennial Home Buyer?
Many millennial buyers feel frustrated and hopeless. But there is still reason for optimism. Despite corporate buyers and steep competition, millennials still made up 43% of total home buyers in 2021, up from 37% a year earlier. It might take several tries, but millennials can still find and buy affordable homes in desirable areas.
Patience is the name of the game. As interest rates rise and borrowing becomes more expensive, demand may begin to slow. Additionally, home builders continue to ramp up their building efforts. While America will likely feel the sting of a housing inventory shortage for some time, relief is finally in sight.
How Real Estate Agents Can Help Millennials Find Homes
Buyers’ agents are struggling right now. They’ve seen too many young buyers get their hopes up, excited to finally buy a home of their own, only to have their offer rejected. It can feel disheartening for both the buyer and the agent. Persistence and patience will pay off in the end. In the meantime, you can help your millennial clients in several ways.
First, encourage buyers to consider new construction homes. In a competitive market, a new build is a sure thing – a way to stop the roller coaster of offers and rejections. While some builders remain backed up due to labor and material shortages, the bottleneck seems to be loosening. A new build may be the way to go for buyers who have time to wait.
There are also a few ways to make your millennial home buyers’ offers more desirable to sellers. Check out this post for more ideas to help you sweeten the deal.
Finally, direct younger would-be home buyers to pay off debt and save for down payments. A 2020 millennial home buyer report found that some 46% of all millennials failed a financial literacy questionnaire. Millennial buyers need more education about debt reduction, savings, and investments. A better understanding of financial matters would inevitably make millennials more competitive in the home buying market. Share your knowledge and resources with the younger generation.