Homeownership has long been touted as part of the American Dream. However, for younger generations, that dream has been nearly unobtainable. With ever-increasing debt, rising home prices, and a trend towards urban living, millennials have been slower to buy than the generations before them. But the millennial home buyer is finally entering the market, and we might have a pandemic to thank.
Who Are Millennials, Anyway?
While the exact definition varies from one source to another, the “Millennial Generation” typically encompasses everyone born from 1981 to 1996. And they have now overtaken Baby Boomers as the largest generation in the country, surpassing 72 million people.
The oldest millennials are nearing age 40, and the youngest among them are in their early 20s – out of college and ready to start life as adults.
Data shows that millennials are better educated than the generations before them. But that education comes at a cost, and many are dramatically in debt because of student loans. However, there is a more pronounced divide between the income-earning of those who have a college degree than those who don’t.
Millennials are diving headfirst into careers, they’re tech-savvy, and they are waiting longer to partner up and start families. They are diverse, innovative, and still trying to get ahead financially after the Great Recession.
And all these factors impact their home buying habits.
What Drives the Millennial Home Buyer
While the millennial generation was slow to start purchasing homes (thanks in part to the Great Recession and the housing crisis, combined with high student debt), they’re now beginning to purchase real estate.
Many waited longer than the generations before them to find partners, settle down, and have children. However, a large percentage now have families. Therefore, today’s millennial home buyer is looking for more space for a growing family to, well, grow.
Perhaps one of the most significant factors driving home buying for this generation is price. With so much debt – and rising housing prices – most millennials still cannot afford a traditional 20% down payment. Instead, they’re looking for first-time homebuyer incentives, FHA programs, and affordable homes where they can make their dollar stretch further.
Why Are Millennial Home Buyers Waiting to Purchase?
Housing affordability, income disparity, and debt are three main reasons millennials are waiting to purchase homes. Put simply, many cannot afford to purchase a house in this market.
Job earnings have been slow to keep up with an increasing cost of living. However, the cost of college has skyrocketed. As a result, millions of America’s young people struggle to make ends meet, even with professional careers, because of rising student loan debt.
On top of the financial challenges, the Great Recession and the real estate crisis of 2008-2009 caused many lenders to tighten lending requirements. Those who cannot afford a 20% down payment find it much harder to qualify for a loan, and those who do qualify will have an added mortgage insurance payment.
Finally, social changes have impacted millennial home buyers from entering the market. Some prefer minimalist living, choosing smaller apartments in urban areas over a suburban home. Community-style living isn’t uncommon for this generation, as many must have roommates simply to afford a roof over their heads.
COVID-19 and Changes in Home Buying Habits
By and large, the Coronavirus pandemic expedited the millennial home buyer’s timeline. A RealTrends report found 75% of all millennials report working primarily from home since the pandemic began. Of those, 63% say they will continue to work remotely and therefore need a home with more room for their workspace. With commute time less of a factor, distance from the workplace isn’t a significant consideration.
Millennial homebuyers are also taking advantage of historically low interest rates, making home buying within reach. Whereas they may not have been able to afford a mortgage payment even a year or two ago, lower interest rates now make that payment within reach for many millennials. While COVID-19 upended many parts of our lives, it was good news for the first-time homebuyer.
Are Millennial Home Buyers the Future of Real Estate?
Remote working, low interest rates, and growing families are all driving an increase in home buying. However, millennials still face obstacles to their dreams of homeownership. Increasing housing prices and a lack of inventory can make finding an affordable home difficult.
While this generation may have waited longer than their parents and grandparents did to purchase their first home, it seems the millennial home buyer is finally poised and ready to enter the market.