For years, professionals and “experts” have feared that millennials would never purchase homes, and this lack of buying would lead to a decline in the real estate industry.
It seems we can put those concerns to rest, as millennials, who are now at prime ages for home buying, seem to be driving the real estate recovery.
Millennials: Not the Permanent Renters We Once Thought
Have They Postponed, Or is it Just a Myth?
This article is based on the assumption that millennials have not been purchasing homes in the past, but now they are. But is this a fair statement, or is it simply a false reputation? Is it really true that millennials have delayed a home purchase longer than their parents and grandparents, or is this just a myth?
According to a few sources, there are legitimate statistics that say millennials have in fact been delaying a home purchase more than other generations. RISMedia, a real estate news and information source, reports on a 2018 study conducted by Insider and Morning Consult. This study found that millennials are more likely than baby boomers to postpone major life events because of finances. What is being delayed? Everything from medical procedures to starting a business. They are more likely to delay a having children, starting a business, and, (you guessed it!) buying a home. The survey, which polled a hearty number of almost 2,100 Americans, found that 23% of baby boomers were more likely to delay purchasing a home, while half of all millennials are more likely to delay the purchase. But this survey looked at two different groups who are each in different phases of their lives. It seems obvious that millennials, who are (mostly) still shy of middle age, would have greater financial troubles than baby boomers, who have had a whole career of work to save money. The survey looked at both generations right now.
The real question is, what did other generations do when they were in their mid-twenties and early thirties? We need to look at millennials right now and other generations when they were younger.
A report from SoFi claims that the average age of a home buyers in 2018 was up from previous decades. Their information says that in 2018 the average first-time buyer was 32 years old, while the average first-time buyer in the 70’s and 80’s was 29. But that’s only a difference of three years; a change for certain, but not the massive difference you might have expected.
Another report, this one from CNBC, gives a stat that is a little more useful. This report cites a study by the Urban Institute, which found that millennials are 8% less likely to own homes than generation-x and baby boomers when they were the same age.
So while the idea that millennials won’t, or simply can’t, buy a home may be exaggerated, there is data telling us that, in some measure, the reputation has truth behind it. In the past, millennials were less likely to buy a home.
Why Did Millennials Postponed Purchasing a House?
There are a lot of theories that can be tossed about as to why millennials have been less likely to purchase a home, but it seems that finances and lifestyle choice are the biggest factor.
While every generation has faced financial hardship of some kind, millennials appear to put a larger emphasis on tight budgets, high expenses, and low incomes as a reason for not buying. The report from CNBC actually provides information here; the Urban Institute that was cited in their article claims that 51% of millennial respondents said they couldn’t afford a down payment. Many also said they couldn’t qualify for a mortgage (33%), it’s more convenient to rent (28%), or renting is more affordable (26%). Mobility is often cited as a reason for not buying; the assumption being that if you don’t own a home, you can move anywhere you want and live a more active, on-the-go lifestyle. This seems to play out, as “I’m planning on moving soon” was a reason for 24% of the respondents. (People taking the survey could mark more than one response, which is why the totals are well over 100%.)
These all seem to be legitimate reasons for not choosing to purchase a home. Student loan debt has severely damaged the finances of many individuals from the millennial generation. With the rising cost of college, many young students took on far more college debt than they can now comfortably afford; this choice, which was touted at the time as a positive, is now a regret for many American adults.
Many in the millennial generation also saw their parents go through devastating foreclosures during the financial crisis that began in 2008. It’s long been held that this experience basically traumatized millennials from ever wanting to buy a home.
Millennials Are Now Jumping into Homeownership?
Now comes the good news: millennials appear to be joining the ranks of homeownership. According to realtor.com, “millennials…are now emerging as a driving force in the U.S. housing market’s recent recovery.” Their article says that the group has accounted for over half the sales of new homes. In July of 2019, millennials were only 38% of home buyers; in 2015 they were only 32%.
The report also says that people born in 1990 make up that largest portion of the millennial generation. If you were born in 1990, you are now, or will soon be, 30 years old, which is prime time for homebuying.
Why are they Entering the Market Now?
So again we ask why? Why has a generation that previously avoided homeownership suddenly turned a corner and started to buy homes? Getting older, marrying, and having children have a lot to do with it, but it seems that there are other factors to consider.
The coronavirus seems to be a driver. Millennials, facing increased risk of infection in dense cities, combined with the unprecedented opportunity to work from home, has made homeownership more attractive. Low interest rates, the chance to have more space, and the ability to purchase an asset that (in most cases) grows in value, has made homeownership more enticing, and has proven that the millennial generation in not all that different from generations of the past.
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