Millennial homebuyers are making purchases more than any other generation. Here's why.
- Millennials are buying more homes than other generations. 6 reasons:
- Highest earners
- Largest generation
- Work from home
- Open to multiple housing options
- Coming of age
- Low interest rates
- They still face unique challenges, including student loan debt, down payment savings, and a competitive market
Over the years, the millennial generation has gotten a bad reputation for putting off big life decisions like marriage, having children, and buying a home. But studies are showing that millennials continue to lead the home buying market.
A survey from the National Association of Realtors shows that millennials make up the largest share of homebuyers, and they have since 2014. And while they may have been putting off a purchase past their 20s, they tend to make bigger purchases for their first home, foregoing the starter home and spending a bit more.
So, what's causing the influx of millennial homebuyers? Here are six reasons and a look at the challenges facing this generation.
1. Millennials are the highest earners
One big reason that millennials are buying homes is that they're the highest earners. The same NAR report indicates that millennials had a median income of $113,300 in 2019. They thus have more opportunities for home buying when they can save more and afford a solid monthly mortgage payment.
Even while this generation saw a delay in home buying compared with previous generations, those extra years helped them save up, and they're now getting in on the market nationwide.
2. Millennials are the largest generation
Let's also state the obvious: millennials are buying the most homes because they are currently the largest generation in the U.S., having surpassed Baby Boomers. So, it's no surprise that, as this generation ages and finds more stable employment, they'll buy more homes.
3. Millennials work from home
Even before the pandemic, millennials were freelancing and working remotely in record numbers. This kind of lifestyle gives them more flexibility to travel and manage familial responsibilities. They love the ability to set their own schedule and work from the comfort of their home.
While many millennials are still renting, especially in large cities where housing prices are steep, many are turning to homeownership since they spend so much time at home. They want their home space to be everything – a place to sleep and eat, to hang out with friends, and to work and create – so they need more space.
4. Millennials consider multiple types of housing
Where Baby Boomers and other older generations wanted the standard home in the suburbs when they were ready to raise a family, millennial homebuyers are a bit more flexible and consider other housing options. Lots of millennials have flocked to more urban areas, and thus are looking for homes like condos and townhomes. They forego some of the outdoor space to live in a more bustling neighborhood. This allows them to still live where they want to live when purchasing property.
5. Millennials are coming of age
The youngest millennials are thought to have been born in 1996, meaning they'll turn 25 in 2021, and the oldest millennials are around 40. Every number in this wide age group can represent the time in life when people are starting to settle down, becoming more financially stable, and starting a family. Thus, buying a home is higher on most of their priority lists.
6. Low interest rates
Beginning in 2020 after the pandemic hit, mortgage interest rates were extremely low, hitting as low as 2.65% in January 2021. While they're starting to climb back up once again, millennials are still taking advantage of those low numbers in the 3% range. They've quickly realized that, with these rates, they can pay what they're paying now for rent with a mortgage and will have that added benefit of being a homeowner.
Challenges for millennial homebuyers
It's also helpful to walk through a few of the major challenges facing millennials when they want to buy a home:
- Student loan debt: One survey showed that 68% of millennials between ages 33 and 40 are still paying down their student loan debt a decade after they graduated. That kind of debt can stand in the way of making a big purchase or getting mortgage approval.
- Down payment: The down payment on a home is no small sum. Since millennials can be delayed in tasks like saving large amounts of money, coming up with a down payment can be a big obstacle.
- Credit score: Depending on when millennials started opening lines of credit, their credit may not be very old. This is a big factor in determining their credit score, which in turn informs lenders about their loan eligibility and terms.
- Marital status: Sometimes buying a home requires the income of two people. As millennials are putting off getting married, or avoiding it altogether, they may have to wait a few more years to buy a home on their own.
- Competitive markets: The housing market is extremely competitive right now, as inventory is at a record low and can't keep up with demand. This means that millennials will be fighting over the same homes and may have to make multiple offers before getting an acceptance.
Even with these challenges, millennials remain at the top of the homebuyer list. It's unclear how the market will turn in the coming months and years, but more people in this generation will continue to hit their savings goals and start looking for property.
Finding the right legal help when buying a home
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