I believe that there are many misconceptions when it comes to Millennials. We have all heard that Millennials are renting longer or live with their parents for a longer amount of time than previous generations, and that they have issues with student debt. These factors, to the general eye, would make it appear that Millennials are not interested in home ownership. But, from my research and experience, this is only part of the story.
So, what gives? According to NerdWallet and their review of recent industry surveys and data from government agencies and corporations “a majority of millennials would prefer owning to renting, but they appear to be postponing homeownership because of real and perceived difficulties in affording it. In fact, our analysis found that millennials, those born from 1981 to 1997, look upon owning a home just as favorably as previous generations.”
Here are a few facts on Millennials and homebuying from NerdWallet:
- U.S. millennials total 66 million individuals and 24 million independent households.
- The median age for first-time homebuyers has remained virtually unchanged for the past 40 years: In 2015 it was 31 years old, compared with 30.6 in 1970-74.
- Two-thirds of millennials haven’t reached that homebuying age of 31, and 22% are under 25 years old.
- Millennials are renting for a median of six years before buying, compared with a median of five years for renters in 1980.
- Millennials are expected to form 20 million new households by 2025.
- The median income for a millennial older than 25 is $38,220.
- Meanwhile, the number of millennials living with their parents has increased nearly 15% from 2006 to 2013.
Here are a couple positive signs:
- According to Javier Vivas, manager of economic research for Realtor.com, “Millennials’ home search is on.” Millennials recently became the dominant group of users searching for homes on Realtor.com.
- Both the National Association of REALTORS® and Gallup Poll surveys of Millennials have shown that Millennials believe real estate is a good long-term investment, that they intend to become homebuyers and are increasingly choosing to buy a home.
- Americans owe over $1.4 trillion in student loan debt with the average Class of 2016 graduate having $37,172 in student loan debt, up six percent from last year according to com. This can be a contributing factor to delaying home ownership as just released by CNN Money. This, of course, is not good news. The positive side of it is that “with student debt on the rise, there’s been a lot of speculation about whether the cost of a college degree hurts an individual’s ability to buy a home,” says NerdWallet’s Ling. “From what we’ve seen, getting a four-year degree or higher is actually positively associated with homeownership — even when accounting for debt.”
- CNN Money reports that, “Millennials are the largest group of homebuyers. In January, Millennials represented around 45% of all purchase loans, up from 42% the same month in 2016.” Per CNN Money, Millennials are diving into home ownership, but “the struggle can be real”.
When NerdWallet asked Millennials what they believed were the biggest obstacles to getting a mortgage, millennial renters gave these answers, in order:
- Insufficient credit score or history
- Affording the down payment or closing costs
- Insufficient income for monthly payments
- Too much existing debt
For many millennials, the data NerdWallet analyzed reveal that these reasons may be more perception than reality. The important thing is to look at your financial position, make positive changes/plans to prepare for responsible home ownership through personal fiscal responsibility.
Millennials have a few things to consider when buying a home:
- Increasing rents make home ownership more attractive. Money saved was the reason 21% of millennials chose to buy a home per Ellie Mae’s Owners’ Key Insights.
- This buying season Millennial first-time homebuyers will be up against seasoned repeat homebuyers who have already started their home search last year, so it is good to start the search early and be prepared. Make sure you set your budget and get pre-qualified. Check out the Consumer Financial Protection Bureau(CFPB) Home Loan Toolkit to get started.
- The home inventory shortage means rising home prices which bring into account home affordability. In response to what is stopping you from buying a home 45% haven’t saved enough for a down payment per Ellie Mae’s 2017 Borrower Insights Survey. CNN Money recommends that Millennials move home for two years to save money, reduce their debt and save for down payments.
- Lending requirements have tightened. Understand your budget and what you will need to save for your down payment. Click here for Zillow’s Home Affordability Calculator.
- Interest rates are great for home buying. Rates have gone up 3 times since 2015, but even with these increases rates still make home ownership very attainable.
I am excited to see the rise in home search and ownership in millennials. As with anyone approaching home ownership, it is good to make sure you are an educated buyer, that you understand what you are getting into, and that you have someone you trust to work with as you embark on your journey.
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