As the largest age group of homebuyers, millennials are changing the face of America’s communities.
What are some factors driving their home buying?
Financial considerations rank high. That’s not surprising given that almost half of millennial buyers have student loan debt. according to the National Association of Realtors 2018 Home Buyer and Seller Generational Trends Survey. But that debt certainly isn’t stopping some of them from entering the housing market in full force. Rather, they see buying a home as a way to grow their nest egg.
“Millennial buyers, at 85 percent, were the most likely generation to view their home purchase as a good financial investment”- Lawrence Yun, Chief Economist and Senior Vice President at the National Association of Realtors.
While debt may not be holding them from entering the housing market, it is prompting them to consider more affordable neighborhoods.
Unfortunately, meagre housing supply is putting pressure on their search for affordable homes. According to a news release from NAR in July 2017, total housing inventory nationwide measured year-over-year has fallen each month for over 2 years.
According to Jessica Lautz, managing director of survey research and communications at NAR, Millennials now have children and want to be in a location that has good schools. They are looking for a place that is walkable where they can bring their strollers and dog.
Given these supply challenges and need for space at an affordable price, where are they moving?
In an effort to link affordability with desirability, Millennials have given birth to six major trends and a new way of living.
Trend 1: Surban Living
As they grow their families, millennials are leaving bright lights behind. Last year, only 15 percent bought in an urban area down from 17 percent the previous year and 21 percent two years ago, according to NAR’s generational survey. Millennials are choosing the Surban areas that has a mix of sub-urban and urban features. Not only being affordable, this new way of living allows them extra budget to spend on things they love like entertainment.
Trend 2: Cities that never sleep
Cities like Kansas is answering home buying challenges by evolving into a place millennials want to call home. Due to large investments from the public and private sector, these cities underwent mixed-use development that is both attractive to residents and business. Millennials coming into these cities remain lively all day and into the night, enjoy below average unemployment rates, a combination that offers homebuyers an appealing place to grow their careers.
Trend 3: Mid-West Beckoning
Lower than average housing costs and healthy job opportunities abound in many mid-western cities such as Madison, Wisconsin and Omaha, Nebraska, where unemployment rates of 2-3 percent are well below the 4.3 percent national average.
Trend 4: Eco-friendliness
In addition to community characteristics like these, millennials are also demanding specific, energy-efficient amenities inside and outside their home. This gives not only a good feeling of helping the environment but also helps save money as well in economies with high home prices.
Trend 5: Manufacturing Hubs
Cities like Pittsburgh, Pennsylvania have a new life due to the influx of industry and tech companies. Cities between Buffalo to Omaha that once relied on heavy manufacturing are now attracting millennials who are drawn to the diversity of the cities’ urban cores, the value of their real estate and the relatively reasonable cost of living.
Trend 6: New Tech Hubs
Gone are the days when landing a cool tech job meant packing and moving to Silicon Valley. The tech industry has officially gone national, meaning techies with all different types of lifestyle preferences can find somewhere to call home. One such example is Austin, Texas ranking as most affordable in addition to quickly becoming the Silicon valley of the south with companies like Amazon, Google and Facebook operating offices there.
Millennial Home buying Data and Forecast
According to NAR data, from 2015 to 2018, we see an increase in millennial home buying from 32% to 38%.This is mostly because "millenials" are growing older and correspondingly richer. This is one of three reasons:
They lived in their parents house longer and saved up sufficient money for their home purchase.
They have really good jobs that pays large paychecks to save up faster.
They have rich parents making gift contributions towards their mortgage.
In addition, Inc. Magazine notes that 66% of millennials plan to buy a home in the next 5 years. While it looks like the market share will increase even further down the road, we certainly don’t need to wait to see the influence millennials already have on the market. Forbes listed “millennials” in the top 10 real estate trends to watch out for in 2018.
Continued limited housing inventory has raised the competition for home buying amongst Millennials, who are buying new homes in record numbers.
According to Ellie Mae's latest Millennial Tracker survey, 89% of mortgage loans made to Millennial borrowers during the month were for new home purchases. This is up one percentage point from the month prior, and the highest percentage since May 2017.
The average Millennial homebuyer just turned 30. According to Ellie Mae's latest Millennial Tracker survey, the average age of a Millennial home buyer rose from 29.5 in March 2017 to 30.1 in March of this year.
As more Millennials reach the prime home-buying age of 29 to 32 years old, they are finding a mortgage experience leveraging technology that is fast and engaging in ways that their parents couldn’t imagine when they were buying their first home.
Another interesting tidbit of data from the report is that Millennials had a significantly higher average loan-to-value ratio than the rest of America’s homebuyers. According to Ellie Mae’s report, Millennials were able to garner an average LTV of 87% whereas all other borrowers’ average LTV was 79%.
Conventional, Federal Housing Administration and Veterans Administration purchase loans all showed increases in the Millennial cohort, with conventional purchase loans up 5% from February, FHA purchase loans up 2% from February and VA purchase loans up a whopping 13% from February.
Rising Rents Factor Into Millennial Home-Buying Market
The millennial market is on the move. Rising rents coupled with starting a family and increasing wages in a solid job market are motivating millennials to home ownership.
A recently released survey from realtor.com on rising rents and the impact on Millennials sheds light on the issue.
We know rents have been going up pretty consistently the past few years. In the last 13 months rents have increased 4% nationwide. That’s not huge but relentless increases year after year add up. If buyers can lock in a monthly mortgage with a 30-year fixed there is a huge incentive to get into the home buying market. Millennials respond to that.
According to an online survey of more than 1,000 active buyers conducted in early March by Toluna Research for realtor.com, 23% of millennials surveyed indicated that rising rent was a trigger for their home buying purchase. Realtor.com reports that HUD data shows rents were up in 85 of the top 100 metro areas, including nine metros where rents were up by double-digit percentages from a year ago.
At 75.4 million strong, millennials have now surpassed baby boomers as the largest generation alive, according to the U.S. Census Bureau. However, with 57 being the median age of today’s homeowner, millennials still fall behind boomers when it comes to homeownership.
The Typical American Homeowner
Source: Zillow Group Consumer Housing Trends Report 2017
The millennial segment of the population, roughly aged 20 to 36, faces several challenges when it comes to entering the housing market. Rising interest rates, low inventory and escalating home prices “leaves few options for millennials, a huge generation just entering the market that genuinely wants to become homeowners, but can’t find anything to buy,” Zillow recently pointed out in its 2018 real estate predictions.
Still, the largest generation in history is “particularly motivated to buy.” Realtor.com forecasts that by the end of 2018, millennials could account for 43% of those taking out a mortgage.
On the flip side, 50% of the largest generation in history is still driving rental demand. Millennials represent roughly half of all households rented within the past year, according to the Consumer Housing Trends Report 2017 from Zillow.
Source: Zillow Group Consumer Housing Trends Report 2017
Onerent recently launched “Poplar Street”, a revolutionary program to accelerate home ownership for those first time millennial home buyers looking to buy a home but have difficulties doing so. Poplar gives back 20 percent of their monthly rent as “Home Savings Credit” towards their home purchase. With over $200,000 rent that goes down the drain traditionally, Poplar transforms rent as an investment towards the future.
Millennials can also use the “Poplar Calculator” to find out how soon they can buy a home. This gives them clarity and a well laid out path to avoid financial pitfalls on their journey towards their home. Millennials can now save more and lead a comfortable lifestyle in urban areas with Poplar Street. They can redeem their savings by buying homes in any of our service areas in San Francisco bay Area, Seattle, San Diego or Los angeles with Onerent as their buyers agent. Poplar Street in short, makes renting meaningful.