Homeownership for Millennials?
Millennials, also known as Gen Y, are now the largest population group in the United States at seventy-two million people, making up 22 percent of the population. They’re also not that young anymore; older millennials (OM), born between 1980 and 1989, are starting to hit their forties, and younger millennials (YM), born between 1990 and 1998, bottom out at twenty-six. That makes them the perfect age to buy a home—and the ideal targets for selling one.
Millennial homebuying habits
As millennials become more financially stable, increase their savings, and experience career growth, they have become increasingly interested in becoming homeowners.
- According to the National Association of Realtors (NAR), millennials currently represent 43 percent of homebuyers in the US, the largest group compared to all other generations.
- Of this 43 percent of millennial homebuyers, 81 percent of YM and 48 percent of OM are first-time homebuyers.
- The most common type of home purchased by millennials is a detached single-family home, with an average size ranging from 1,700 square feet to 2,400 square feet.
- Most millennials (69 percent) would rather be homeowners than tenants and are willing to move to another state to buy an affordable home.
- Millennials typically marry and have children later than previous generations, resulting in a later entry into the real estate market—significantly later than their boomer parents. Some critical reasons for this are high student loan debt, inability to save, and a slow recovery from the sluggish job market of the Great Recession in 2007—2009.
Overall, both older and younger millennials use their mobile devices to search for homes and submit mortgage applications through real estate apps. A benefit of this is that when real-time notifications of new listings are sent, a showing can be scheduled within minutes of receiving an alert—a convenient and efficient way to search for a home.
With the recent interest rate hikes, adjustable-rate mortgages (ARM) are making a comeback with millennials as they struggle to make up the difference with a potentially higher monthly mortgage. Because interest rates can fluctuate, an ARM allows the borrower to lock into a lower rate for a defined period—three, five, seven, or ten years, making an ARM a great option. Other benefits include lower upfront costs, more flexibility if a move is required, more cash flow, and the possibility of purchasing a more expensive home.
Real estate agent
Older and younger millennials prefer a real estate agent to help them understand the purchase process and to help negotiate the terms and conditions of their sales contract. In fact, on average, 90 percent purchase their home through a real estate agent, proving that agents continue to be a trusted resource for homebuyers across all generations.
Challenges for millennial homebuyers
Although a quarter of millennials say they will be “forever renters,” a large portion of this generation does want to become homeowners. However, they may still face various challenges.
- The millennial generation has had a more difficult time saving for a down payment; 24 percent indicate that it’s the most challenging step to becoming a homeowner, and 25 percent need financial help from family or friends to help purchase a home.
- Inventory levels are low in many markets, resulting in higher prices and making homes unaffordable for many millennial buyers.
- Interest rate hikes can increase the potential for higher monthly payments, thus reducing buying power and making purchasing more difficult, especially for first-time homebuyers.
- In real estate markets across the country, many investors and sellers in more expensive markets are paying cash for homes, leaving millennial buyers in a precarious position due to their inability to compete with cash buyers.
Luckily for millennials, some of these challenges may be short-lived as the housing market is predicted to experience a pricing correction in 2023. Some markets are already encountering a buyer slowdown. And with this expected shift, there’s no reason to expect millennials won’t continue to dominate the real estate market.