Is the “millennial” generation starting to buy homes in greater numbers? There are positive signs, but what support is needed to help more purchase their first homes, what properties/locations do they tend to prefer and what do third-parties need to know to better understand them and assist them with home ownership strategies?
Despite an excellent interest rate environment and ample inventory to choose from, the millennial generation (those born between 1982 and 2000) have put off homeownership for a longer time than any other generation before them.
Since this generation entered adulthood when headlines featured foreclosures, financial crashes, bankruptcies and layoffs – not to mention stock market volatility -- who can blame them for hesitating?
Even today’s hurdles make the goal of home ownership unattainable for many first-timers: record-high rents, stricter mortgage rules, and skyrocketing student loan debt now averaging $30,867. That debt is up from $25,250 in 2010, $17,233 in 2005 --- and $9,000 in 1990. Consider also that 30% of millennials still live at home.
Yet, even with these challenges, realistically fleeing their parents’ homes for a home of their own and trading in apartment leases for mortgage agreements is now more realistic and achievable.
Seeds Planted and Green Shoots Showing
Strong indicators abound that hint more millennials are ending their delayed home buying and starting to take some action:
First-time buyers often see the benefits of home ownership coupled with affordability—mortgage prices have been stable over the last few years and rents have risen steeply. Further helping the case for buying include the following key points:
- Interest Rates. Interest rates remain low and attractive. At the time of this writing, average rates for 30-year fixed mortgages were 3.91%, in a survey of 125 lenders by Freddie Mac. Concerns over interest rates rising in the future have spurred many buyers riding the fence to consider purchasing now. For millennials, there’s no time like the present to buy.
- Down Payments. Since saving for a down payment is a huge challenge for first-time home buyers, in 2015, Fannie Mae and Freddie Mac — the government-controlled mortgage entities that establish the rules for conventional loans — began accepting loans with down payments of only 3 percent from first-time homebuyers. Additionally, with an FHA-insured home loan, the entire down payment can be gifted from a family member now. The FHA, which long allowed 3.5 percent down payments, also cut its annual insurance charge to homeowners by half a percentage point.
- Employment and Wages. Jobs and pay seem more consistent now. According to the Pew Research Center for Social & Demographic Trends, 85 percent of college-educated 25 to 34 year olds were employed. Other standard benchmarks also demonstrate that nationally, the young adult labor market has strengthened.
Education. Home ownership aspirations are strongly tied to education levels according to the July Apartment List study:
- 77 percent are millennial renters who have a college degree (2-year, 4-year, and technical degrees)
- 67 percent are high school/GED graduates
- 63 percent did not complete high school
- Marriage and Families. Increased job stability and wages usually trigger other life events. No matter what generation, when young couples begin raising families, new responsibilities typically translate into changing priorities. They tend to save more, establish roots, commit to a community, focus on building wealth and purchase homes.
What Millennials Want
According to a survey of millennials for Realtor.com in June, the primary obstacle in home purchase for this generation is finding a house that meets their needs.
- Speak “to” me. They are drawn to local, knowledgeable realtors who are active online, cater to their generation’s communication preferences and will speak to, not down to, them as novices. Likewise, realtors should demonstrate -- online or in person -- being able to empathetically discuss realistic trade-offs between millennial wants and needs.
- Understand the generation’s financial challenges. Be able to help them connect with resourceful, generation-savvy mortgage lenders to get them pre-approved. Realtors need to read up on the generation’s financial challenges and what makes this age group tick -- like what they commonly look for in homes.
- Proximity and “walkability”. Millennials tend to gravitate toward communities where everything they need is close. According to a recent study, millennials prefer walking to driving by a greater margin than any other generation. This helps them avoid paying car insurance, gas and parking if they walk, bike or take public transit. More than half of the respondents to a National Association of Realtors survey said “sidewalks and places to take walks” were “very important” home search factors with 41 percent saying they want to be within an easy walk to other places in a community. Millennials want alternatives to driving, improving public transit and creating communities where cars aren’t necessary as it helps the planet.
- Urban Driven. This theme has transferred over to real estate and sustainability. They like to live smaller and closer to metro areas, rather than bigger and farther out.
- Connectivity. Items like high-speed cell and internet service and third-party certified LEED certifications are more important.
- Sustainability. Insulation, passive heating and active solar systems, such as solar panels on a roof, are great. Web-enabled interactive thermostats are highly valued.
- Lifestyle Choices. Formal dining or living rooms are not primary needs. Kitchens have become the gathering place.
- Home Office. As more Americans telecommute to work some parts of the week, a home office is becoming important for many millennials.
- Low Maintenance Homes. Young buyers also tend to prefer low maintenance homes, as they want their down time to be down time -- not for DIY sweat-equity jobs, mowing large lawns or raking leaves.
New Generation—New Approach to Home Finding Assistance
Lawrence Yun, chief economist for the National Association of Realtors (NAR), says millennials are buying houses for many of the same reasons their parents did. “Fixed monthly payments and the long-term financial stability home ownership can provide are attractive to young adults despite witnessing the housing downturn,” Yun said. To bolster this, real estate portal Zillow predicts that millennials will overtake baby boomers as the generation purchasing the largest number of homes this year.
A big difference is how millennials are buying homes versus the way their parents did.
An obvious differentiator is the technology to access more information—and information brings power.
Unlike when their parents searched for starter homes, there was probably little to no data available to them on listings. They didn’t have instant access to photos, virtual tours, maps, school and mortgage information, historic price and property tax data, and market trends that we all have today.
Some young buyers see realtors as “those with the keys to get inside”. Realtors should be ready to show listings they think millennials might be interested in, but fully anticipate this tech-savvy generation to also come armed with their own, well-researched listings and data found on their smart phones.
For real estate agents to connect with younger buyers:
- Advertise on Zillow, Trulia and Realtor.com
- Do not send junk emails that clutter up their emails or text screens
- Be prepared to communicate almost exclusively via text as it is the preferred method of communicating for millennials
- Embrace social media with an active site to help build trust in who you are as a “social” person—not just as a business person
- Millennials like the validation of customer reviews and endorsements
- Maintain an active, reliable blog with up-to-date market conditions, listings, interest rates, neighborhoods or real estate challenges solved for young clients
- Positive client reviews should be prominent and easily searchable on line with age ranges posted
A contemporary website that has a video of yourself and is easy to navigate, captivating and chock full of up-to-date properties with photos/videos and pictures of happy customers in their demographic can go a long way toward building your credibility with millennials.
It’s no longer only about your listings or what you’ve sold that matters. It’s also about your personality, interests and community involvement. How do you identify yourself as a person? How can these millennials relate to you so you can gain their trust? Photos can express a thousand words, so think visually with less words—it will be greatly appreciated.
Welcome, Homeowner Millennials – America’s Glad You’re Here
Financial challenges young people face are so intrinsically linked to the health of the economy that even politicians are taking a keener look at how to help this demographic…one with massive purchasing—and voting—potential.
Solutions could involve government restructuring of student loan obligations and offering new incentives for first time homebuyers. The percentage of first-time buyers isn’t what it was pre-2007 when it reached a high of 40 percent, but the direction and trends are positive.
Helping millennials purchase homes will require a creative combination of:
- Recognizing financial challenges faced by this group
- Offering cost comparison tools demonstrating affordability between renting and owning
- Enlightening them on potential opportunity costs of owning vs. renting
- Educating them about first time home buyer benefits and lending programs.
- Adjusting to their preferences in housing, locations, features and communication styles
- Expanding realtor web/blog/Facebook presence to build trust and demonstrate one’s personality, market knowledge and research
Such efforts not only empower these young purchasers to achieve their goals, but the assistance could help further revitalize the U.S. real estate market and the overall economy—and that benefits everyone.