Knowledge is power, and as a real estate agent, it's your job to show millennials why they shouldn't shut the door on homeownership by explaining the opportunities and benefits.
We all keep hearing tales (and complaints) of millennials moving back in with their parents after graduating college.
And we know that millennials now make up the largest segment of homebuyers, but they’re hesitant to jump into the housing market.
Why is it that moving back in with mom and dad is more appealing than building equity?
Let’s take a look at millennial tendencies, how they influence the market, common roadblocks and how to overcome them.
NAWRB’s (National Association of Women in Real Estate Businesses) article“Millennials and the Homeownership Puzzle” explored whether this generation’s desire for homeownership has mitigated because they are delaying “independent living, marriage and parenthood much later than older generations did.”
These three milestones, it continues, “all contribute to homeownership and the desire to own a home.”
According to PEW Research, as of 2016, 15 percent of 25- to 35-year-old millennials were living in their parents’ home — a 5 percent increase over Gen Xers of the same age who lived at home. (Younger millennials were left off of this study because they tend to move back and forth during college.)
Millennials, especially women, are prioritizing their education and careers over marriage and buying a home of their own.
Moreover, women are marrying into their late twenties and older. In 1940, women on average married at 21.5 years of age; today, the average age has increased to 27.
However, the delay of these significant milestones will not eradicate homeownership from the minds of this generation.
It certainly hasn’t affected the 59 million households — almost half of all households in the United States — that are maintained by unmarried men and women, as 2015 U.S. Census Bureau data reveals.
How they influence the market
Single or not, millennials make up a large segment of homebuyers as first-time buyers and are influencing the market as a result.
Half of all buyers are under the age of 36, and first-time buyers account for 47 percent of all purchases, according to the Zillow Group Consumer Housing Trends Report.
The homeownership rate for millennials increased a full percentage point, 34.3 percent to 35.3 percent, between the first and second quarter of 2017. They are the only generation to witness an increase in their homeownership rate from last quarter.
As more millennials enter the market, we should see more diversity among America’s homeowners. For instance, Zillow reports that only 66 percent of millennial homeowners are white, compared to 77 percent of all homeowners. Among millennial homeowners:
· 17 percent are Hispanic or Latino
· 10 percent are African American
· 7 percent are Asian or Pacific Islander
An increased presence of millennials in the housing market will help boost diversity.
At the same time, this influential group will receive the tried-and-true benefits of homeownership, including stability, price appreciation, tax credits, a secure path to wealth and asset accumulation and more.
We know that millennials in general have not turned their backs on homeownership.
This is what the statistics tell us, but the numbers may not reflect the views of the millennials we care about — our friends, sons, daughters, students and peers — who are busy earning degrees, traveling the world, starting careers, swiping right and experiencing all life has to offer.
The question remains: How can we perpetuate millennials’ interest in buying a home? The goal is to have millennials’ desire for homeownership reflected not only in the numbers but also in the people we know.
What is the best way to do this?
The first step is to have them see homeownership as a real possibility for their future. After all, one must see the goal before being able to reach for it.
Currently their vision is clouded by misinformation and perceived roadblocks to owning a home. The following discussion will hopefully add some clarity to millennials’ perspective.
Roadblocks to homeownership: Affordability and low inventory
There are certainly real obstacles that millennials have to overcome in achieving homeownership.
Two legitimate concerns surround low affordability and low inventory.
Millennials worry about their ability to afford a home with sizable student debt and difficulty entering, or climbing, a fragile job market.
Adding to the problem, a low inventory of starter-homes has created a small pool of affordable homes for first-time buyers.
Fannie Mae economists report a trend of single-family landlords who have been buying starter homes — potential prospects for millennial buyers — and turning them into rental properties for profit.
This may be related to another trend of first-time buyers purchasing larger and more expensive homes usually sought after by older generations.
Affordable housing and low inventory are key issues in homeownership that need to be addressed by the housing ecosystem to help millennials transition from renters to homeowners.
However, these are not the only concerns for this generation that are possible deterrents.
Millennials’ homeownership concerns
Below is a list of four common fears from a millennial perspective followed by ways a real estate agent can respond to quell those fears.
1. “My parents lost their home in the 2008 housing bubble. This was extremely difficult for my family, and I don’t want to go through something like that again.”
Agent response: With over millions of foreclosures and countless families affected, the 2008 housing bubble left millions of millennials wary of homeownership.
However, the housing crisis led to stricter lending practices, and RealtyTrac reports that in June 2017, properties that received foreclosure filings in the U.S. decreased by 22 percent from the same time last year.
Homeownership will continue to be a powerful way to build and secure wealth. It is important to weigh the benefits and the possible detriments, enter homeownership at the right time for you and always make sound, sustainable financial decisions when buying a home.
2. “I’m a struggling professional who hasn’t settled into a lifelong career. I’m open to homeownership, but I don’t make enough money to buy a home.”
Agent response: There are many programs available that can assist in the homebuying process. FDIC’s Money Smart, the FHLBanks Affordable Housing Program (AHP) and NeighborWorks America are just a few valuable resources offering financial literacy information and homeownership assistance and guidance.
NeighborWorks Orange County, for instance, offers long-term savings programs — which have ended with attendees purchasing their first homes — and multiple down payment programs, offering up to $57,500 in loan assistance for every income level, calibrated by HUD income limits.
Whether your income is at 80 percent or 160 percent of the area median income (AMI), you can qualify for cost assistance, 10-month programs, grants and/or loans.
Although these financial circumstances may be difficult for millennials with only one income, they are within reach for those with a partner and even more attainable for young people investing in the home with multiple friends.
One trend contributing to affordability among millennial homebuyers is purchasing a home and renting out the rooms, which allows for assistance with monthly mortgage payments. Some homeowners are even turning a profit.
The takeaway is that you may be able to afford more than you think. Knowledge is power, and you shouldn’t shut the door on homeownership before examining your capabilities and the opportunities available.
3. “Renting provides me the flexibility to relocate for new job opportunities, and I plan to travel extensively in the near future. Owning a home won’t provide me the same type of freedom.”
Agent response: Homeowners benefit from a unique type of freedom not available to renters. Homeownership is a well-known means of wealth creation and financial stability; each payment you make toward a home adds to your personal wealth, not someone else’s.
Homeownership can be a long-term commitment to a specific area, but it doesn’t mean the end of your travel adventures; and its fiscal benefits cannot be overlooked.
The resources you build can be used to buy another home in a different location or to fund your ongoing travels.
4. “I usually see married couples with children, or with plans to start a family, buy homes. I’m single and don’t plan on having children, so homeownership isn’t important to me.”
Agent response: Being married or having children are not requirements for homeownership.
Owning a home provides stability, safety, financial independence and a secure path for wealth accumulation. These are benefits to singles and married couples alike, so why not take advantage of them now?
Rising home prices and interest rates significantly complicate affordability; on the flip side, if you have the means and desire to purchase a home, it might be in your best financial interest to do so sooner rather than later.
How we can help
If you know a millennial who may have one or more of these concerns, use this dialogue as a guide in responding to them.
A simple conversation is all it takes to help millennials on their way toward becoming informed and confident homebuyers.