Wednesday, February 17, 2016 / by Nicole Solari
Forget all of the old stereotypes about American housing—starting with the notion that only families with a mom, a dad, and 2.2 kids buy homes. Since the Great Recession, homeownership rates among Gen Xers, who are between the prime family-rearing ages of 35 and 50, have actually fallen more than rates of any other age group. Meanwhile, millennials, the generation of roughly 75 million Americans between ages 18 and 34, have been buying homes later in life than previous generations, in part because of student debt, high rents, and low credit scores. But now they’re entering the market in greater numbers.
Today’s path to homeownership is still strewn with challenges, many of them vestiges of the housing market’s collapse in 2008, which resulted in 5 million foreclosures and, just four years ago, a shocking one-third of all mortgage holders owing more than their homes were worth. Late last year, that sobering share was down to about 13.4 percent, but it’s still more than twice what’s considered normal, according to research by Svenja Gudell, chief economist at Zillow, the real estate website.
With so many homeowners stuck, usually in lower-priced homes, today’s first-time buyers of every demographic face fewer choices and inflated prices. Banks are less strict than they were right after the crash, but they still demand stellar credit. And federal guidelines now require more proof that borrowers can meet their payments. “The lending market has eased up quite a bit, but lenders are stricter than ever when it comes to documentation,” says Michael Alexander, president of Infiniti Financial Group, a mortgage lender in Deerfield, Ill.
And yet, perhaps through sheer number, millennials were the top buying cohort in the country in 2013 and 2014, barely edging out baby boomers at No. 2 and Gen Xers in third place, according to the National Association of Realtors.
What Millennials Value
The Consumer Reports National Research Center surveyed 1,573 millennials nationwide to better understand their attitudes toward housing. Overall, they believe firmly in ownership. Though just 26 percent currently own a home, 71 percent aspire to do so. Their top reasons include a desire for more privacy, the ability to make a space their own, and the wealth-building benefits of homeownership.
Yale economist and Nobel Prize laureate Robert Shiller recognizes the satisfaction of homeownership, but he says it’s not a foolproof investment for everyone and never has been. According to his research, U.S. home prices, adjusted for inflation, have barely appreciated year to year over the past 120 years. Of course, there have been exceptions in certain markets and time periods, he notes, cautioning first-time home buyers: “Just don’t be overly optimistic that it is going to keep going up in value.”
More than one-third of millennials who responded to our survey say the top reason for not owning a home is that they haven’t saved enough for a down payment. And it’s easy to see why. A 2015 report from the Joint Center for Housing Studies at Harvard University shows the financial pressure on those in the 25-to-34 age group who rent. Forty-one percent still owe, on average, $30,700 in college debt, and almost a quarter pay more than 50 percent of their income for housing.
“Millennials are sick and tired of rent increases, so they’re getting into the game in larger numbers,” says Dowell Myers, a demography and urban planning professor at the University of Southern California. He thinks the Federal Reserve’s December 2015 interest rate increase, the first in almost a decade, will further motivate fence-sitters to enter the market.
So what are millennials looking for in their next place to live? According to our survey, proximity to family and friends topped the list of features, though short commutes and walkability also popped up.
Another developing trend in real estate: the rise of the single household. In 1985, single women accounted for just 10 percent of buyers. By 2005, during the last housing boom, that figure reached 21 percent for women; single men accounted for 9 percent of buyers. Many singles also want walkable communities and easy-to-maintain homes, according to real estate professionals. The expectation is that by 2025 there will be as many single-person households in the U.S. as there are homes with families.
As for specific housing preferences, the cohort also known as Gen Y doesn’t always equal Gen DIY. “It has to be move-in ready,” says JP Endres, a real estate professional based in Westchester County, N.Y. “They’ll personalize the home in small ways, for example with paint, but my millennial buyers don’t want to have to renovate or do a lot of work.”
Many Generations, One Roof
Hispanics are another huge—and growing—force in U.S. housing. So much so that the Urban Institute, an economic and social research group based in Washington, D.C., estimates that they will account for about 55 percent of new homeowners this decade. Those who already own homes are making their preference felt. “It is common for Hispanics to buy houses with an eye toward integrating their parents,” says Nora Diaz Bretherton, co-founder of Casa Latina, a home and lifestyle website.
For many homeowners and their relatives, multigenerational living has become an economic necessity. Consider this: The 36.4 percent of women ages 18 to 34 who lived with their parents in 2014 was the highest level since 1940. Even more adult men (42.8 percent) lived at home in 2014. It’s no wonder that 13 percent of home purchases last year were by multigenerational households.
Then there are the baby boomers, who have helped transform housing at every turn, starting with the post-World War II suburbanization to house them and their parents. Boomers now head up 40 percent of U.S. households and control 54 percent of total household wealth. But what comes next for them? A 2015 survey by the Demand Institute, a nonprofit organization operated by Nielsen and The Conference Board, found that almost two-thirds of boomers plan to stay put, often in the same suburban homes where they raised families. That has led to an uptick in aging-related remodeling—for example, replacing the once-coveted whirlpool tub with an accessible walk-in shower. According to an earlier Demand Institute survey, 39 percent of boomers plan major home improvements.
Although the composition of America’s 134 million (and counting) households has never been more varied—some experts are calling it the “next America”—many of the new rules that govern it are universal.
The Huge Truth About Tiny Homes
Photo: Courtesy of HGTV
The tiny-house movement has been enjoying its media “close-up,” even getting an HGTV show, “Tiny House Hunters,” and an FYI show, "Tiny House Nation," dedicated to those seeking living spaces no bigger than a school bus.
But the truth is that newly built single-family houses are still getting bigger. In fact, we hit another record high for overall size in 2014—reaching a national average of 2,657 square feet. Of the 620,000 newly constructed single-family homes in 2014, only 48,000, or about 8 percent, were smaller than 1,400 square feet. Meanwhile, about 10 percent were 4,000 square feet or more.
“The tiny-house movement is pretty tiny,” says Lawrence Yun, chief economist for the National Association of Realtors, adding that homes smaller than 1,000 square feet made up less than 1 percent of U.S. sales from 2010 through 2015. “People might seek smaller units for affordability or environmental benefit, but they quickly realize that, in terms of comfort, it’s not a permanent solution.”
Editor's Note: This article also appeared in the March 2016 issue of Consumer Reports magazine. Nicole Solari is the best agent in Solano County, Nicole Solari is the top agent in Fairfield, Vacaville, Vallejo and Napa.