Millennial Homebuyers, Faced With a Tight Market and Heavy Debt, Still Forge Ahead
As interest rates creep higher and housing markets across the country report lower inventory, the spring house-hunting season looks set to be intense – and perhaps even more so because of a rising number of young buyers testing home ownership for the first time.
Economists and real estate agents alike are carefully watching Millennials – one of the largest demographics to reshape the American economy since baby boomers – to see not only what kind of effect this debt-laden, tech-savvy generation could have on the housing market but also when it may peak.
“We're seeing this wave start to crash,” says Len Kiefer, deputy chief economist at Freddie Mac, a public government-sponsored home loan mortgage corporation in Washington D.C., in an interview with The Christian Science Monitor. “[Millennials are] taking a bigger part of the market as you might expect, given their size and the fact that they're getting closer to their age where a lot of them will be looking to become a homeowner.”
While more than half of those under 35 years old still rent, Millennials made up the largest group of first-time home buyers at 66 percent in 2016, according to consumer reports from the National Association of Realtors (NAR). And in January 2017, data from software company Ellie Mae, which tracks mortgage data, shows Millennial buyers accounted for 84 percent of closed mortgage loans.
“[T]he Millennial generation ... is just delaying a lot of life stages relative to earlier generations, and that sort of pushes where homeownership would fit in that picture a little bit later,” says Mr. Kiefer.
And that could bring additional heat to an already tight housing market this spring.
When it comes to home ownership, Matt Culik and his wife were ahead of the trend for the average Millennial. The couple purchased their first home in 2011 when they were 26 years old and still saddled with a substantial amount of debt from college loans.
“The student debt was a budget factor … but it was not a factor to get a mortgage,” Mr. Culik tells the Monitor in a phone interview.
Now, six years later as more Millennials have aged up and started to put down roots, Culik says home ownership is not that uncommon among his friends. But he admits the initial home buying process could be a bit terrifying for his peers, who would sooner look online for answers on how to secure a mortgage and find a house instead of cold-calling mortgage and real estate brokers.
“We were very lucky to have a great agent and a lawyer and they walked us through the process,” says Culik, who now works in digital marketing for Century 21 in New Jersey. He adds that they turned to real estate professionals after not finding enough guidance through online searches. “It was weird for us ... we kind of needed to trust those people, and for our generation, that's a bit weird, but it all worked out.”
Marketers have been quick to clue into the fact that while young adults are increasingly connected to and dependent on the internet, that doesn't necessarily translate into being well-informed when it comes to making grown-up decisions, like buying a home.
Jessica Lautz, managing director of survey research at National Association of Realtors, says that 92 percent of Millennial home buyers used an agent to help them each step of the way, from finding the right home to negotiating the terms of the sale.
"Helping them navigate the tight inventory to find that perfect home for them is so important for Millennial homebuyers," says Ms. Lautz. "They are using technology in their home search process, but they are using it hand-in-hand with a professional."
To aid this growing market of first-time home buyers, real estate marketers have launched marketing campaigns to make the process more approachable. For instance, in March, Century 21 launched “Adulting 101,” an online resource with articles that touch on a range of life lessons such as office etiquette, personal finance, and how to stock your pantry, in addition to strategies for wading into the real estate market.
But even if Millennial's are ready to take the home ownership plunge, a housing shortage could still keep affordable options just out of reach.
“With fewer homes on the market and a lack of inventory continuing to offer buyers fewer choices, it is expected that the Millennial or first-time home buyer share of the market will hover around 33 percent of all existing home sales in 2017,” Cara Whitley, chief marketing officer of Century 21 Real Estate, says in an email to the Monitor.
Yet all signs point to a growing resolve among Millennial's to face economic uncertainties and forge ahead.