Millennials and Home-ownership

The Millennial generation, also known as Gen Y represents a hugely important demographic for the Housing Market. Born between the early 1980’s and mid-2000’s, Millennials range in age from mid-teens to mid-thirties. Representing 95 million people they are the largest generation in the U.S. that have, historically, driven the first time-buyer landscape. Millennials are the first generation to come of age in after the financial crisis. Currently most millennials would rather pay a higher mortgage for an apartment in a downtown urban than buying a home. On average, they pay up to twice as much a percentage of their monthly income for housing compared to homeowners. There are several reasons that make them put off the decision to buy a home, choosing to rent instead.

Changing Social Trends

Millennial marriage and social formation trends are different from those of previous generations. They are waiting longer to get married and have children, factors that are greatly influencing the home-ownership.

The Money and Credit for Buying a Home

It seems like the millennials are one of the best educated generation. Almost 35% of millennials between 25 and 29 years old hold a degree. However they also have the highest rates of outstanding student loan debt levels in history. As most Millennials had to enter the workforce during Recession the number of college graduates that are unemployed or underemployed are higher compared to those of previous generations. Even more the wages for the employed Millennials have dropped by 7.6 percent since the onset of the 2008 Recession. The deep-rooted effects of demanding employment possibilities are still with them today. All these factors are holding them back from purchasing a home.

Home Prices

One of the most important factors is the constant unaffordability of home prices, combined with a stagnant wage market. Even more the median home price has significantly increased. Even more many millennials tend to relocate to some of the most unaffordable housing markets in the country, such as New York, San Francisco or San Diego where less than 30% of the available housing falls within the affordable price range. It seems that affordability is the biggest barrier to home-ownership. The overall rate of home-ownership in US has dropped to 63.4% in 2015, the lowest level in almost fifty years. The home-ownership rate is considerably lower among millennials, and keeps declining. Surveys show that most potential home buyers under 35 do not have adequate savings for down payments. As a result most of them will have to delay purchasing their first house with up to 5 years. Based on the current home prices, it looks like many millennials do not have the necessary savings to make a down payment and purchase a house within the next 5 years. According to a recent survey 37% of millennial renters do not have any savings while more than 70% are not able to put aside more than $200 each month. Considering a standard 20% down payment, a millennial renter would require 28 years in San Francisco, 20 years in Los Angeles, 11, 9 years in Washington D.C. and 10.4 years in the New York area to get the entire down payment Fortunately in certain parts of the country the home ownership seems to be within reach.  For those millennial renters wishing to settle down there are still a few possibilities. They can either choose to purchase a property through a smaller down payment mortgage such as an FHA loan program that only requires a 3.5% down payment, or they can relocate to more affordable cities and suburbs on the interior of the country. The study has covered 93 metropolitan areas and 130 cities from the United States. You can click here to download the data. The mortgage industry is trying to adapt to the requirements of these “digital natives” by introducing more intuitive and innovative products. They are striving to identify the customer behavior and experiences in order to gain insights into the demands of the millennials.