The common wisdom goes that millennials, saddled with crippling student debt and reluctant to make commitments and settle down, are unlikely candidates for the real estate market. The numbers, however, tell a different story. Indeed, recent data reveals that millennials’ homebuying-averse reputation is inaccurate, and that young couples and singles aged 25 to 34 constitute a powerful and growing force in the homebuying market. According to the National Association of Realtors 2015 report on generational trends, millennials represent 68% of first time homebuyers, and at 32% they make up the largest share of homebuyers overall. That percentage is likely to continue to grow. The 2015 Bank Mortgage Service Index reveals that a full 50% of millennials are looking to buy their first home and are either “extremely” or “very” likely to seal the deal within the next year.
Although initially surprising, this trend makes sense when you consider the different ways that millennials are engaging in life planning. Unlike the generation before them, many millennials are willing to prioritize owning their own home before marriage. When faced with the large cost of a wedding and the likelihood that they will marry and have children a full decade later than their counterparts 30 years ago, Forbes reports that 38% of millennials have already or would choose to delay their wedding or honeymoon in order to buy a home first.
Furthermore, millennials are simply more optimistic. Most did not experience the economic downturn and housing market crash first hand, and so tend to view homebuying as an investment and not a risk — an investment that allows them to build equity rather than continuing to pay out monthly rent which may increase at any time.
And they may be right. Dennis Delaney, partner at the law firm Hemenway & Barnes LLP, tells US News that homebuying can be a smart financial move for millennials. He caveats that good candidates have been consistently moving towards their financial goals, growing their savings slowly and steadily, and can afford the recommended downpayment of 20%.
Buying a home, however, may not mean the same thing for millennials as it did for their parents. The average millennial homebuyer is concerned with upward mobility and is looking for a place to live rather than a lifelong home in which to raise their family. They prefer amenity-rich locations, often choosing city condos over the traditional suburbs. Because they view houses as investments first and foremost, millennials are more willing to put time and money into improving fixer-uppers, often through cheaper do-it-yourself methods. The majority of young homeowners report that they have decorated, renovated, and made repairs. These new and improved houses are then likely to be owned for only a short time before being sold for a profit. Once avoided as a risk and discouraged by most financial advisers, this kind of casual home flipping is now proving common and successful for millennials. The average life of a home loan now ranges from five to seven years.
One thing is clear: millennials have entered the homebuyers market in force, and their involvement is changing the game. This dynamic development is a trend to watch.