Coming Of Age As A Buyer
The media often reports that Millennial homebuyers can’t be relied on to save housing markets. They aren’t as interested, says conventional wisdom, in buying homes as previous generations.
But fresh data suggest that Generation Y buyers are purchasing homes and more eager to become owners than you’d expect.
They Don’t Want To Couch Surf Forever
It’s true that plenty of twenty- and thirty-somethings have delayed the American dream of owning a home. Many have chosen to remain renters.
Others moved back in with Mom and Dad years ago and never left. But today, more Millennials are stepping up to the diving board and taking the plunge.
If you’re between 20 and 36 years old, chance are you’re getting the urge to jump into homeownership, too. With your finances in order and the right prep, you’ll ace ownership without fear of sinking.
Stats Suggest Millennials Are Buying, Or Want To
Don’t believe Millennials buy into the ownership goal? The latest numbers may change your mind.
Exhibit A: Members of Gen Y (those younger than age 36) were the largest group of home buyers (34 percent) for the fourth straight year, per a new National Association of Realtors’ (NAR) study.
The study also found that Millennials, at 85 percent, were the generation most likely to regard their home purchase as a good financial investment.
A new Bank of America survey reveals other key findings.
Millennials actually plan to own multiple homes throughout their lifetimes. Sixty-eight percent say their current home is a stepping stone toward the home they want to end up in versus 36 percent of homeowners across all generations.
And 86 percent of Millennials believe that owning is more affordable than renting.
Speaking of renting, Apartment List found that the 80 percent of Millennial renters want to purchase a house or condo.
More Numbers To Chew On
Millennials also comprise most first-time buyers, based on NAR data. That’s because today’s average first-time buyer is 32 years old.
This buyer has a median income of $72,000. The median price of their first home purchase is $182,500. And their median down payment is six percent.
Note that first-time buyers (mostly Millennials) accounted for 85 percent of the overall increase in home sales during the past two years, according to fresh Genworth Mortgage Insurance data.
In fact, the latter report shows 37 percent of all homes sold in 2016 were to first-timers, up from 31 percent in 2015. And the percentage of homes sold to first-time purchasers rose by six points, from 31 percent to 37 percent.
Why Purchases Have Been Postponed
Experts say it has taken Millennials longer to join the home ownership ranks for several reasons.
“The hyperinflation of college tuition has made it necessary for Millennials to take out exorbitant loans to earn a college degree. That means they’re often graduating five and six figures into debt,” says Matt Pinsker, adjunct professor at Virginia Commonwealth University.
“Because of this debt burden, it’s taken them longer to get to a place in life where ownership was financially feasible.”
Also, many young Americans have extended their stays in their parents’ dwellings.
“One study describing young Americans’ residential arrangements from 2004 to 2015 showed an 11.4 percentage point increase in living with parents or similar elders,” says J. Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College.
“Young people living at home delay major purchases and general entry into economic life. This trend is only just tempering at the older age range of Millennials.”
Tamara Dorris, adjunct professor of real estate at American River College, agrees.
“I’m seeing many younger people stay with their parents longer,” she says. “But many of these stay-at-home Millennials are using it as an opportunity to save and buy.”
Knowing A Good Investment
Robert Johnson, president/CEO of The American College of Financial Services, says Millennials are also fiscally conservative. But this actually makes them more inclined to purchase a home today, he adds.
“They see buying a home as a prudent and risk-averse way of accumulating wealth,” says Johnson.
“Buying a home seems like a good, conservative investment nowadays, because over the long run real estate values tend to rise. Millennials are drawn to this seeming stability in the value of residential real estate.”
Dorris credits Millennials with having good sense here, even if it’s delayed their entry into the housing market.
“Millennials were born cable- and computer-ready. I believe this has accelerated their learning potential,” says Dorris. “They’re realizing that real estate continues to be one of the best long-term investments.”
The Successful Home Purchase
Whatever your age, buying a home is a big step. So it’s important to be ready. Dorris recommends these tips:
- Save as much as you can for the down payment. This makes your offer on a home for sale more attractive. It may also help you avoid having to pay for private mortgage insurance.
- Keep your credit clean. Check your credit report, and work on improving your credit score. Do this by establishing credit (adding a credit card does not have to increase your debt loan if you pay it off each month) and paying your bills on time.
- Make sacrifices in your consumer habits. “Shift from short-term impulsive buys to long-term anticipated purchases. Yes, the newest iPhone is great, but not as great as putting that money toward the home you want to buy,” she says.
- Find the best real estate agent you can. “Go for a seasoned, skilled professional,” Dorris adds, “not just one you find on Facebook or some website.”
- Shop around for the right lender. Get several rate quotes, and compare terms and fine print carefully.
Lastly, learn as much as you can about what’s required to purchase, close on, and own a home.
“It’s important to be fully educated when you’re ready to buy a home,” says Dorris. “Understand the long-term implication, the sacrifices and the rewards of home ownership. It’s a lot of responsibility. So be certain it’s the right path at the right time for you.”
What Are Today’s Mortgage Rates?
Today’s mortgage rates are low enough to make buying a home affordable in many locations, even for those starting up the career ladder. But home prices are on the move, and many experts expect interest rates to trend higher as well.
That makes sooner a better time to buy than later.