Real Estate

Millennial homebuyers are trickling into the market. Where are the rest?

What's taking so long?

young family buying a home

The common refrain is that millennials are spending all of their money on avocado toast, which means they can’t afford to buy a home. Right?

Yeah, not so much. While millennial spending habits may be a contributing factor, their inability to buy a home can also be blamed on a lack of savings, rising student loan and credit card debt, and homes being unaffordable.

The self-proclaimed “broke” generation is trying to be smarter about the housing market, but it’s difficult for quite a few potential homebuyers.

One issue is student loan debt, which is now the second-highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans, according to a report from Forbes. There are 45 million borrowers who collectively owe more than $1.5 trillion in student loan debt in the U.S.

Borrowers in the class of 2017 owe $28,650 on average, according to the Institute for College Access and Success. That debt load is making it harder for potential buyers to become actual buyers.

In an interview with HousingWire, Odeta Kushi, deputy chief economist at First American Financial, said that student loan payments are about 3% of the average millennials’ income.

“It’s not that they’re not going to buy, it’s that they’re not going to do it at the same age that the Gen Xers or the Baby Boomers did for a number of reasons – student loan debt being one of them,” Kushi continued.

Because of student loan and consumer debt, more Americans are waiting longer to purchase a home that previous generations did. According to Realtor.com, the median age to purchase a home has increased by eight years since the financial crisis. But the trend goes back further than that. A new report from Deutsche Bank Research shows that the median age of homebuyers in 1981 was 31. Since then, it’s gone up 16 years and, at the end of 2019, sat at 47.

Another issue is, as Baby Boomers age in place, Millennials aren’t left with much to choose from in terms of available homes.

Boomers are aging in place for a reason, according to Jeff Holzmann, CEO of IIRR Management Services, a real estate investment firm based in New York. “With the advent of a lot more modern medicine, there is a huge increase in the average lifespan of both male and female in the United States, what you’re seeing is that people are working into a lot later stage in life,” Holzmann said. “What we’re seeing is people staying in their homes until a lot later in life, and that changes everything.”

Aging in place is leading Millennials to think about homebuying in a different way. Case in point, approximately 88% of Millennials who have student loan debt say they are thinking about purchasing a fixer-upper home.

Help may be on the way. According to Zillow, about a third of homes in the U.S. are owned by residents aged 60 and older. Throughout the 2020s and 2030s, Zillow said it expects the Boomer generation to create a “Silver Tsunami,” with more homes opening up on the market as they move out of these homes.

Between 2007 and 2017, about 730,000 homes were released back into the U.S. housing market each year by seniors age 60 and older. The expectation now is that between 2017 and 2027 that number will rise to 1.17 million per year, according to Zillow.

Kushi said that despite this, the higher educated, older Millennials are actually skipping the “starter home” concept, and going straight to what used to be the upgrade home. But, that may be out of necessity more than anything else.

“Especially because the inventory on low tier homes and low price tier homes is so limited, some of the older Millennials are turning to that,” Kushi said. “In terms of style, I’ve read a lot about Millennials preferring more modern structures that come all ready to go, don’t have a lot of maintenance work required in them, as opposed to some of the Boomers homes which are much bigger and made for a larger family. First-time homebuyers probably are looking for something a little bit smaller close to the city closer and to amenities.”

A third issue is lack of knowledge and fear of the homebuying process. 75% of first-time Millennial homebuyers admit they’re overwhelmed by the process of buying a home, according to TD Bank. The most common misconception? The down payment. In many cases, the myth that homebuyers need to put at least 20% down to buy a home still persists.

“Where did that come from? Well, it came from the Baby Boomers that were buying houses back in the day,” said Jewell Marsh, a home loan advisor at Mason McDuffie, based in Dallas. “But in terms of Millennials, there’s so many programs out there today, where you can get down payment assistance in the closing costs. So you can come out of pocket very, very little, and still get to take advantage of homeownership.”

Marsh’s overall goal is to get all Millennials into a home. He said he has helped Millennials with salaries from $36,000 to $400,000 get into a home, worry-free.

The key to homebuying, Marsh said, is focusing on how to get the most, and make the most, of the amount of money that was invested. “If you can figure out how to structure the mortgage so that you can take care of these other things like student loans, credit card bills, auto loans, so that you’re paying actually paying those down while also having ownership, that’s much more important than just the ‘hey, I want the lowest interest rate,’” Marsh said.

Combine all these factors and it becomes easier to see why Millennials aren’t buying homes the same way their parents did. On the positive side, there are hurdles, but it doesn’t mean those hurdles can’t be cleared.

And that’s the bottom line: it may just take younger generations a little longer to buy their first home. But that doesn’t mean they won’t ever do it. So how about everyone take it a little easier on Millennials?

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