How Millennials Are Transforming the American Housing Market

Millennials, those born between 1981 and 1996, are changing the US housing market. Millennials are mobile and tech-savvy, and have strong opinions on the types of houses they are looking for and at what price. It is a wise mortgage professional who learns this growing, important market segment. Learn more about how the housing market is changing with the growth of the millennial buying population in the article below.

Millennial Home Buyers – The Dominant Home Buying Demographic Today

Many mortgage brokers and real estate agents are unaware of just how large the millennial home buying market is today. It is estimated that millennials are now the largest group of home buyers, making up at least 34% of the market. And, they are 66% of first time home buyers. (Nationwidemortgages.net).

Millennials have become the overarching force in the US housing market. In 2016, Millennials associated owning a home with the American dream far more than other age groups:

  • 18-34: 65%
  • 35-49: 58.4%
  • 50-64: 56.9%
  • 65+: 63.9%

According to 2016 data, most millennials expected to purchase a home within three to five years:

  • Next year: 9.2%
  • One or two years: 23.7%
  • Three to five years: 33.2%
  • Unsure: 7.6%
  • Never: 1.8%
  • More than five years: 24.4%

Millennials Proving to Be Tech Savvy Home Buying Researchers

Almost every millennial – 99% by some estimations – looked online when searching for a home. That compares to older baby boomers from 62-70 at 89%, and the silent generation at 77%. In all, 95% of American home buyers used the Internet to look for a home.

Also, millennials like to search for their dream home on mobile devices; 58% of this key age group used their smartphones to find a house, while Gen-Xers used smartphones 46% of the time, and younger boomers from 52 to 61 used them only 33% of the time.

Statistics further show that 76% of millennials did a driveby of a home because of an online advertisement they saw, and 64% of millennial potential buyers did a home walkthrough after they saw a listing online.

These young, savvy buyers used technology in January 2019, reports from Ellie Mae suggest, to refinance their home loans when rates dropped that month. Millennial refinances were at their highest rate since February 2018, and accounted for a whopping 13% of all closed loans. (MPAmag.com).

Millennials Trust Realtors

One of the most interesting findings of recent millennial home buyer surveys is now much they trust realtors to help them find their dream home:

  • Millennials: 92%
  • Gen-Xers: 88%
  • Younger baby boomers: 87%
  • Older baby boomers: 85%
  • Silent generation: 86%

They Want Homes Ready to Move Into!

Older Americans often do not mind buying a ‘fixer upper’ that needs some TLC before becoming their dream home. This does not describe the millennial home buyer. Most do not want to spend the money or time rehabbing an older, distressed property. They tend to purchase newly built homes to avoid issues with renovations, as well as electricity and plumbing problems. Surveys show 48% of millennials want to buy a new home, while only 34% of all buyers want the same.

Student Debt and High House Prices Are Major Obstacles

While the median household income for millennials is a healthy $82,000, they also are saddled with student loan debt.

According to Forbes, there is $1.56 trillion in student loan debt in the US. This has a major effect on the ability of millennials to buy their first home. Bankrate.com reports 31% of Americans to have student loan debt that is from their own education. Also, 13% of American adults have financed another family member’s school costs via student loans. Of people who responded to the Bankrate.com survey, 31% said they were delaying buying a home because of student loan debt.

Approximately 46% of millennials owe at least $25,000 in student loan debt, which is a monthly payment in many cases of $200 or $300. Millennials also say saving for that down payment as a first time home buyer with no equity in a current property is the biggest challenge.

Another major challenge for the millennial home buyer is that for those who are settling in major cities such as New York, Washington DC, Los Angeles, San Francisco or Boston, there is a high chance they are being priced out of these desirable but very expensive markets.

That said, some mortgage managers say that mortgage companies that provide better low money down mortgage programs could help millennials to become homeowners, and increase their market share in this incredibly important age demographic. There now are programs out there where you can put down less than 3% down.

Regarding student loan debt, there are conversations in Washington DC about how to put millennials in a better buying position. There are discussions about having only one government income based-repayment plan. Today there are five potential loan forgiveness programs of the remaining loan balance after 120 payments have been made. If you can see your student debt end by age 32, some finance experts say, you could see a scenario where you can possibly buy your first home faster.

Some Millennials Setting Off for Lower Cost Markets

While many younger home buyers are struggling with home affordability and student loans, a March 2019 report by CoreLogic shows that more millennials are heading off the beaten path of higher-priced markets on the coasts and going to Pittsburgh, Buffalo, Provo and Rochester, New York to find lower-priced homes. In these and other smaller metro areas in the middle of the country, buyers can get more house for their dollar. And because prices are lower and mortgages smaller, qualifying is easier. (Homebuyinginstitute.com).

CoreLogic analysis finds millennials make up a higher percentage of home buyers in smaller housing markets in the Midwest. On the other hand, there is a lower number of them in the country’s expensive coastal markets. This makes sense, as most millennials are buying for the first time and do not have equity from a previous sale to buy their new home.

CoreLogic analysis found the following markets had the highest share of millennial buyers. Realtors and mortgage brokers in these cities – pay close attention!

  • Pittsburgh: 57%
  • Provo: 56%
  • Rochester: 55%
  • Buffalo: 55%
  • Des Moines: 54%

Data also showed that millennials are getting mortgages in states that border high priced markets. For example, millennial mortgage applicants from New York most often apply for mortgages in Pennsylvania and New Jersey. And applicants in California apply for mortgages in Nevada and Texas.

There is another reason that these smaller real estate markets are gaining cache with the millennial buyer: These markets are showing strong price growth in 2018 and 2019. For instance, the median home value in Pittsburgh rose by 10% over the last year, per Zillow data. That is well above the 7.2% rise across the country in the same 12 month period.

In Provo, the median home value spiked 17% over the last year. That is double the national average. It is expected the Provo real estate market will outpace the US overall through 2020, too. (homebuyinginstitute.com)

While Buffalo may not seem to be a ‘hot’ market, for millennials,  you would be surprised. Prices in this upstate New York industrial city rose by double digits from 2018 to 2019. Millennial buyers looking for value will find them in Buffalo. Utica is another hot place for people in their 20s to buy a home, according to a new Realtor.com list. A major attractor for this upstate New York town is the low prices for homes; the median list price here is just $130,000, while nearby Albany has a median list price of $300,000. (uticaod.com).

Port St. Lucie in Florida is yet another affordable market that is attracting many millennial buyers. It is ranked in the top 10 nationwide for cities with the highest levels of millennial homeownership, according to SmartAsset. Fifty-three percent of these buyers in town own their homes. With average home prices a mere $175,000, Port St. Lucie is a good value for the young homebuyer. (wptv.com).

Millennials Plan Short Stay in First Home

Of all age demographics, millennials are the least likely to define homeownership as permanent. Many of them expect to eventually move and upgrade to a bigger and better home:

  • Millennials: 11%
  • Gen-Xers: 23%
  • Baby Boomers: 29%
  • Seniors: 37%

Also, 68% of millennials view their current home as a stepping stone to a better one they want in the future, compared to 36% of all buyers. Millennials keep their homes only an average of six years before selling, while all buyers keep their homes an average of 10 years before posting the For Sale sign.

What Home Features Millennials Like Best

When it comes to the features in their new digs, millennials have specific tastes, surveys suggest:

  • Large kitchen with an open floor design: The kitchen is where people hang out in the home, and millennials say it should flow easily into other rooms for entertaining.
  • 46% of these young buyers also say they want a ‘luxury kitchen.’
  • Energy efficiency is also important to them; millennials say they are willing to do green upgrades on their homes out of their own pockets. Nearly 50% want solar panels and ways to efficiently store energy from the panels.
  • When it comes to appliances, 75% of young buyers want new, gleaming appliances already installed when they shop for a new home.
  • Many millennials are working from home, so they want to have a large, designated home office to handle their telecommuting.
  • Of course, new technology is tops on the list for the millennial home buyer. Good cell reception and many Internet provider options can be make or break issues for millennials.
  • Close to home: Millennials have seen their parents do brutal commutes. Most want no part of it and 65% want a home close to their job.

Summary

Data shows millennial home buyers are looking for newer homes with all the amenities, but also are sensitive to price due to not having a previous property to rely on for a down payment. Mortgage professionals who want to target the coveted millennial market would do well to focus on low down payment options offered via social media and other online advertising options. Target markets should be the hot, affordable ones in the interior US, where prices and mortgage amounts are reasonable for young people with student loan payments looming for a decade or more.

References

Utica Lands on Realtor.com List of Top Cities for Millennial Homebuyers. (2019). Retrieved from

https://www.uticaod.com/news/20190325/utica-lands-on-realtorcom-list-of-top-cities-for-millennial-homebuyers

Student Loan Debt Still Impacting Millennial Homebuyers. (2019). Retrieved from

https://www.forbes.com/sites/ellenparis/2019/03/31/student-loan-debt-still-impacting-millennial-homebuyers/#61497dd43e78

Millennials Housing Market. (2019). Retrieved from

https://www.nationwidemortgages.net/millennials-housing-market.html

Millennial Home Buyers Flock to Affordable Markets. (2019). Retrieved from

Millennial Home Buyers Looking to South Florida and the Treasure Coast. (2019). Retrieved from

https://www.wptv.com/news/region-st-lucie-county/millennial-home-buyers-flocking-to-south-florida-and-the-treasure-coast

Millennial Homebuyers Milked January’s Low Interest Rates. (2019). Retrieved from

https://www.mpamag.com/news/millennial-homebuyers-milked-januarys-low-interest-rates-says-ellie-mae-161515.aspx

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