Why Are Millennials Having Such a Hard Time Becoming Homeowners?
Although Millennials have been adults in a regularly low rate of interest environment, the barrier to entry to the real estate market and homeownership has been higher for this generation than for others.
The Effect Millennials Are Having on the Real Estate Industry
It’s clear that, compared to previous generations, Millennials are late to the home-buying game. Both their parents, as well as the current news media, lament that lots of millennials either live in their parent’s homes or are merely more content to be renters than has been the case with previous generations. Because of this, the perception existed that being a homeowner was not a priority of this generation. The real answer, though, might be slightly less complicated than this.
Millennials are environmentally mindful and are seeking preservation and conservation of nature, energy, open areas, trails, and sustainability in their choices of home and environment.
Previous generations were purchasing homes in an entirely different world. Most home-buyers from the baby boomers generation found their realtor through personal referrals, the Yellow Pages, or by merely strolling into an open-house on the weekend. It was frequently a stroke of luck if the right chemistry was there.
Further, as many millennials have struggled under the pressures of financial obligation and stagnant incomes to be able to buy a house finally, perhaps getting more in terms of items and services in the transaction or purchase process is a reasonable result. It also reveals that as Millennials continue to be the biggest section of house purchasers, the real estate market will likely change to cater to them with even more types of customization options, complimentary services, free items, and the like.
Evolution of the Real Estate Industry
From dating apps to memberships, the Millennial generation is both hostage to and captivated by technology and innovation, which has found its way over time into the home buying process. The real estate industry has begun to recognize that leveraging the technology millennials use every day will enable it to capture the echo boomer generation, another name for millennials as they are the children of the previous generation, known as the baby boomers.
While these changes in the real estate industry and market might at first glance look like advertising schemes or marketing, they seem to be foreshadowing a coming evolution, or revolution, in homeownership and the real estate market as a whole.
A Study of Millennial Homeownership by the Urban Institute
The 2018 study by the Urban Institute on homeownership and the home buying trends of millennials compared to those of previous generations displayed a few key findings as to the mechanism behind the low homeownership rates among the younger millennial population.
This study concluded the following concerning external factors that were seen to be restricting or deterring millennials from owning a home:
The rising costs of education and increases in student debt have together decreased millennials’ likelihood of buying a home or owning a home, and as financial obligation rises, the amount left over to save for a home amounts to less than rent in many cases.
The high rental prices, in turn, make it even more challenging for millennials to save any adequate sum of money for a deposit on a house.
The fact that the supply of affordable real estate has declined over the past decade, particularly in areas where millennials favor living, has also made it increasingly difficult for those in this generation to become homeowners.
Student Loan Debt Makes Buying a Home Difficult for Millennials
Currently estimated to be at over $1.5 trillion, student loan debt is still a huge reason why so many millennials are either refusing or delaying buying a home and becoming homeowners.
When you stop to think about it for a moment, millennials, who typically have large amounts of student loan debt (credit.com estimates the average student loan debt per person at $31,172, which maybe doesn’t seem like much in the grand scheme of things, but when your current earnings barely pay for your living and expenses, paying off that debt in its entirety ends up taking an average of 10 to 30 years. For many of those with student loan debt, that’s 10 to 30 years of delayed homeownership.) and incomes unable to pay it off, how are they supposed to be able to afford to buy a home?
Are Millennials With Student Debt Buying Homes?
As of 2020, “Data from the U.S. Census Bureau shows 43 percent out of 72 million millennials have purchased homes while the remaining 57 percent are renting. During the next five years, an additional 7 million millennials are expected to become homeowners, raising the millennial homeownership rate to 56 percent.” – [Millennial housing data and statistics provided courtesy of Foxbusiness.com]
What Does the Future Look Like for Millennial Home Buyers?
Millennials want a home; however they do not want simply any house. Recently, it looks as though millennials are increasingly skipping the starter home and opting instead for something bigger and considerably more costly.
According to the National Association of Realtors, approximately One-third of millennials who purchased homes in 2018 paid $300,000 or more, a steep step up from the $150,000 to $250,000 most buyers plunk down for their first purchase.
Almost half of the current millennial homeowners prefer the suburbs to the big city or rural areas, according to online real estate company giant Zillow. The increasing costs of the rental market have played a part in pushing them toward the suburbs as well.
The bottom line is that millennials have left a long-lasting impression on the real estate market, and more developments might be in the works as this next generation of home-buyers gets in the mix. The key to keeping these advancements in perspective is to focus on the positive impacts millennials have had on the real estate industry.
An emphasis on innovation and technology, for example, may result in a streamlined, more effective home-buying transaction. More millennials relocating to the suburbs could likewise help to quell the effects of rising real estate costs in city locations by driving down demand and increasing supply in these urban real estate markets by purchasing their homes elsewhere.