Millennials, people aged between 25 and 40, represented a huge 38% of American homebuyers last year, breaking the stigma that this age group are not buying property due to affordability.
So, why is millennial home buying on the rise?
Interest rates are at an all-time low, giving young people the chance to reconsider their goals and get on the property earlier, breaking the perception that they can’t afford to own their own home.
Millennials and homebuying: the myths and facts
Millennials are often a misunderstood generation, especially when it comes to home buying. We’ve separated the facts from the myths for you.
The Facts of millennials and homebuying
Millennials are waiting longer to buy
Millennials have a lot on their plates. From dealing with the rise in living costs, student loan debt and the ongoing pandemic, it’s no wonder this age group are delaying major life goals such as buying their first home.
The average age of a home buyer is now 33, which is much higher than previous generations.
The main reason young people stay renting for longer is to make themselves financially ready to own their own property. Other factors such as getting married and having children are also happening later in life than previous generations, delaying the house buying process further.
Millennials know what they want
Renting and saving longer comes with its perks. Millennials are more likely to know exactly what they want in a home compared to other generations.
Here are some factors that are considered important for young people when searching for their first home.
Good location: location remains a top factor across all generations, including millennials. Living close to work and having amenities close by is a big deciding factor when choosing a home.
Environmental features: millennials are conscious about their impact on the environment so will favour homes that are more energy-efficient.
Outdoor space: it doesn’t have to be a large backyard, however having some outdoor space is a must-have for millennials to socialize with friends in.
Multifunctional areas: the younger generation enjoy being able to utilize available spaces for both social and practical reasons. For example, being able to use other areas to host in.
Millennials seek long-term homeownership
It may surprise some people that millennial homebuyers are seeking to purchase their first home in a safe neighbourhood, close to work and with links to good schools.
Historically, a first home hasn’t been seen as a forever home, however millennials are breaking the trend and looking to invest in a property that can grow with them.
Fixer-upper properties appeal to a millennial
Contrary to popular belief, millennials are not looking for the perfect home when searching the property market.
As a generation who have grown up with social media, watching DIY projects on YouTube and following home renovation accounts on Instagram, this age group do not shy away from a project.
Millennials are also smart and know that buying a house that needs cosmetic work or refurbishment is often a more affordable option for them to get on the property ladder. Adding value to a home and making it their own are other appeals for many people who buy fixer-upper properties.
Technology plays a big part in millennial house-hunting
As a generation who uses technology to enhance their lives, the home buying process is no different.
Millennials are using technology on their devices to find out what they need to know about the housing market and home buying process, as well as searching and viewing properties.
Virtual reality technology and 360-degree photographs are giving this generation of homebuyers the chance to move quickly in the market and view potential houses whenever they want to. When it comes to getting a mortgage approved, technology also helps to speed up this process and costs less than using a real-life mortgage consultant.
The myths of millennials and homebuying
Millennials can’t afford a mortgage or the repayments
Many people falsely believe that renting is less expensive for millennials than owning a house. In fact, it’s actually cheaper to pay a monthly mortgage than to rent in many American states.
Rent can be increased or your landlord may decide to sell the house you’re renting, leaving you needing to find the deposit to rent somewhere else.
Homeownership also brings tangible benefits such as stability, pride of ownership and belonging to a community for many Americans. Unlike when you’re renting, monthly mortgage repayments go towards building equity in your home.
Student loan debt is stopping millennials from buying homes
It’s true that student debt makes it more difficult for millennials to save large sums of money, however it certainly doesn’t stop them. Some lenders also calculate debt-to-income differently from before, which goes in favour of millennials with student debt. For example, traditional lenders will factor in one per cent of the total loan value, whereas a more modern way is to take the actual monthly payment into account instead.
Stricter lending criteria and credit scores are making it more difficult for this generation to get on the property ladder.
Owning a home is not a priority for millennials
It’s a common misconception that millennials only seek homeownership as a status symbol rather than for future financial and family security. However, more people who fall into this age bracket want to become homeowners before getting married or having children and value homeownership highly.
The main reasons millennials buy their first home is:
- Control of living space
- Flexibility in future decisions
- To live in a nicer home
- To feel that they belong to a community
Millennials can’t meet the down payment criteria
Indeed, the greatest hurdle millennials need to overcome to own their own home is the down payment, however this doesn’t mean they can’t meet it.
There are also alternative options available such as an FHA loan to help them get on the property ladder. An FHA loan is backed by the U.S. government and only requires a 3.5% down payment and has fewer credit requirements, perfect for the younger generation who are trying to get on the property ladder.
Millennials don’t understand finances enough to purchase a home
Despite being burdened with high levels of student debt and facing recessions, millennials are proving to be a financially secure generation who save more than previous generations. People aged 25-40 have proven that they understand the home buying process and the vast benefits that being a homeowner brings. Financially savvy millennials are only buying homes that they can afford the repayments for, proving they are more than ready to own their own property.
Millennials are also more likely to embrace automation technology, helping to boost retirement savings, house savings and emergency fund savings.
Millennials only want to live in cities where house prices are higher
Even though the number of millennial home buyers is rising, the number of homes bought by this generation in urban areas is decreasing. The fact that home prices in American cities rose 16% recently, surpassing suburban and rural areas is also contributing to fewer Americans aged 25 to 40 living there.
Younger generations seek space, convenience and access to amenities that suburban homes provide. With lower house prices and better amenities for younger generations, it’s no surprise that suburban locations appeal more to millennials.
Are you a millennial homebuyer? Millennials are taking the house buying market by storm and want different things than homebuyers of previous generations.Saving for and finding the right home can be challenging for people of any age. We have some great resources available on our blog to help you with the homeownership process.