Homebuying trends in 2015 are undermining the image of the Millennials as a generation of renters.
realtor.com Chief Economist Jonathan Smoke has argued for some time now that Millennials are not different than previous generations in homebuying, delaying homebuying decisions by no more than a year or two beyond the habits of Generation X of Baby Boomers.
The news is finally a departure from years of being told Americans prefer renting their homes. Is that attitude finally shifting?
Almost 65% of millennials aged 21 to 34 looked at real estate websites and apps in August, according to realtor.com analysis of data from comScore and current population estimates.
“Additionally, when we focus on 25-34 year olds we find that this group is 70% more likely than the average adult to be currently looking for a home to buy on realtor.com,” Smoke says. “While it is difficult to estimate the effect of millennial buyers in the new home market, one can infer that since prices over the year have trended towards the more affordable, that some of the growth in the new homes market is a result of builders providing more affordable supply.”
In August, the market share of first-time buyers of existing homes increased to 32%, from a July rate of 28%, according to National Association of Realtors.
Smoke estimates that half of all home sales activity for the first half of the year can be attributed to first-time buyers and according to the NAR 2015 Home Buyer and Seller Generational Trends report, Millennials comprise 68% of all first-time buyers.
“People who believe that Millennials are disinterested in home ownership are grossly mistaken,” said Smoke. “This generation hit the job market during one of the largest recessions of all time and they’ve had to work hard to establish credit and save for a down payment.
“With the older segment just beginning to enjoy the life events that drive home ownership – marriage and children – now is the most appropriate time for them to consider home ownership, and that’s what we’re seeing,” he says.
A survey of active home shoppers this June and July conducted for realtor.com says the top triggers for being in the market for a home cited by 25-34 year old home shoppers were the following:
- Increase in income (35%)
- Tired of current home (34%)
- Favorable home prices (32%)
- Favorable interest rates (28%)
- Increasing rent (22%)
- Change in family circumstance/composition (20%)
- Planning to increase family size (19%)
- Increase in family size (18%)
“Despite the increased role of Millennials in the housing market, setbacks still exist and are preventing first timers from making even more of an impact,” says Smoke. “As inventory returns to more normal levels, expect the blooming of millennial homebuyers to turn into a boom.”
When realtor.com asked older Millennial homebuyers what was impeding them from purchasing a home, respondents cited:
- 40% revealed limited supply (Have not yet found a house that meets needs)
- 37% said affordable supply (Cannot find a good house in budget range)
- 36% named time (Just starting to explore)
- 28% said down payment (Cannot come up with sufficient funds for down payment)
- 23% selected picking the neighborhood (Have not decided on a specific neighborhood/town)
Data produced by realtor.com in partnership with Optimal Blue, an enterprise lending service platform, also reveals that the key for millennial buyers who want to close on a home is to be very financially healthy with high FICO scores and low debt to income ratios.
“This can be attributed to fact that 97% of millennials have to finance their home purchase,” Smoke says.
Average mortgage statistics for millennials in first half of 2015:
- FICO Score: 714
- Down Payment: 7.1%
- Mortgage Rate: 4.03%
- Debt-to-Income Ratio: 36%