“Generation Y.” “Millennial.” “Echo Boomers.” Generation Wait It Out! For all the titles applied to those born between the early ‘80s and late ‘90s, there’s one that doesn’t quite seem to apply these days: first-time homebuyers.
Homeownership rate among those under 25 is 36.8 percent, according to the Census Bureau—only a little more than half the national rate of 65.2 percent. Compare that to as recently as 2008, when the rate among young adults was at or above 41 percent.
Add to that the fact that according to the National Association of Realtors (NAR), first-time buyers—typically young adults—accounted for only about a quarter of existing-home sales. The lowest market share for that group since the association began monthly tracking and far below the normal 40 percent mark.
Low Hopes, High Debts
There are many reasons would-be Millennial buyers are reluctant to become first-time homebuyers, starting with the most obvious: The job market just isn’t where it needs to be to support household formation.
“The job market right now is pretty tight for the generation coming out of college who are just starting their career,” said Jessica Lautz, manager of member and consumer survey research for the NAR.
Therein lies another major problem, one that has hamstrung even those who have had better luck than others in finding work: education costs. Student loan debts grew $114 billion in 2013 alone, eclipsing all other household debts. Naturally, most of that balance is held by the 30 and younger crowd.
While student debts don’t necessarily mean young adults won’t qualify for a mortgage loan, in this relatively uncertain economic climate, a lot of people just aren’t willing to take the risk of adding home payments on top their other debt payments.
For many fresh-faced college grads, that combination represents the last lesson of their schooling, one learned long after they walked the stage: Poor job prospects plus high debts equals extended stay with Mom and Dad.
The Times Are A-Changing
While economic hurdles are the most obvious reason today’s young Americans aren’t out shopping for homes, there’s more to it than just dollars and cents. Some analysts see Gen Y’s low homeownership rate as an extension of its shift in values away from those of their parents and grandparents.
This is evident not only in how Millennials approach housing, but also in how they approach another major life change: marriage. Frankly, people are waiting longer [to marry]. There’s kind of a pressure to wait until you’re established and have reached upper middle class status. So it’s clear today’s young adults aren’t in the same kind of rush to go out and start their own families, which goes a long way toward explaining today’s low rate of household formations. Of course, that doesn’t mean new households aren’t being created, even by those who have put off plans for matrimony.
“Many, many couples nowadays feel more confident in either buying a property while they’re single or while they’re in a relationship but before getting married,” said Jordan Clarke, a Redfin agent based in San Diego. “It is no longer a requirement that you have to get married first and then buy a house.” We heard a story of a young engaged couple who wouldn’t even put a down payment on their venue before closing the loan for fear of how it would affect their debt-to-income stats. If they would have gotten married first, they would have pushed off their ability to purchase for quite a while until they were able to save up more money so that their debt-to-income ratios would have worked again.
A Savvier Shopper
This story is more than just a demonstration of the change in Gen Y’s sensibilities about unmarried cohabitation. It also illustrates that many of today’s young home shoppers are a bit savvier when it comes to the buying experience than their parents or grandparents might have been. In the Information Age, consumers have price trends, regulatory news, and other useful information all available to them through a quick Internet search— leading to a better informed homebuyer.
They have data at their fingertips. … They set themselves up on automated searches, they look at blogs, and they know the information about their local market. Before they even get to an agent, they know the market well, they know what they can afford, and they are willing to adjust their expectations.
At the same time—true to the stereotype surrounding their generation—Millennials appear to have a desire for bigger and better things than is always practical. Another Redfin survey released in late 2013 listed home “must-haves” among young buyers, finding factors like “affordability” tend to rank near the bottom of the list—a problem for a group coming into the market with low incomes.
A Dream Passed Down
Millennials are tackling personal milestones at their own pace, but they’ll prioritize housing over most others. They’re plagued by debt and low employment, but they rank a home’s affordability lower than most other qualities when considering a purchase. Lastly, they’re willing to scale back their expectations—to an extent.
Generation Y remains, as ever, a difficult group to nail down. There is one trait the majority seems to share, and it’s perhaps the most promising in terms of future home buying activity.
“They want to own,” according to real estate consultants. “Homeownership is still a priority amongst all of the generations, including Generation Y. They’re just not able to right now.”
A recent survey from Better Homes and Gardens backs up the claim, showing 79 percent of Millennials still value homeownership as part of the American Dream, with 77 percent calling it a good investment.
Add to that the fact that, according to findings in the NAR’s 2013 Profile of Home Buyers and Sellers, today’s young households actually have the most positive feelings associated with homeownership.
“Of these successful homebuyers . . . we did find that they’re actually the most optimistic of all the generations”. “They’re thinking their home is not only going to be the place where they’re going to live—paint the walls, maybe start a family there—but it’s a good financial investment for themselves, and they’re the most optimistic out of anyone about it.”
And on top of everything else, the youngest of Gen Y’s ranks have yet to reach what has been the “typical” home buying age. Based on Census data, we expect the Millennial group will grow to make up 44 percent of Americans of primary home buying age—meaning while sales volumes to young Americans might remain low for the moment, it’s really just a matter of time before they eclipse Generation X and the Baby Boomers.
“It’s really just kind of waiting for them to get on their feet. We’re just going to have to wait for it to come.”
The information provided in this write-up is a brief summary of the reports in MReport.