The subject of millennials and home buying continues to be hot in the real estate industry. Millennials, after all, make up the largest demographic group in the United States today, totaling about 66 million individuals and 24 million households (per the latest Census figures). Their reluctance to get into the home buying arena has contributed significantly to a sluggish real estate market, with homeownership now at an all-time low of 62.9%.
Millennials – or adults between the ages of 18 and 34 – are choosing to rent instead of buy, with many opting to stay at or return to their parents’ home. They are renting for longer periods than before, at an average of 6 years compared to the past average of 5 years.
There has been talk that millennials are innately averse to ownership in general, including homes and cars. However, recent studies from various groups disprove this, and show that millennials are just as eager to own a home as their parents were, with around 2/3 saying home ownership is one of their life goals.
Based on a study by First Time Home Financing, an online resource for first time homeowners, the percentage of millennials who own homes is only about 34.1%, way below the averages for the age group in the mid-2000s and early 1980s. Why are millennials shying away from buying a home, despite the prevalent aspiration of owning one?
Several reasons have surfaced from various studies:
- Lack of savings
Many millennials are joining the workforce at entry-level jobs, which typically do not pay enough to allow savings for a home down payment. To add to the burden, millennials also have to pay a record high in student loan amortizations, with a nationwide average student loan balance of $37,000+.
Moreover, according to a study by NerdWallet, two-thirds of millennials have not yet reached the average home-buying age, which remains unchanged at 30 to 31 years. 25% of millennials are currently under 25 years old.
Given these figures, it’s apparent that it will take a few more years before millennials as an age group become a force to reckon with in the home-buying scene. In the meantime, they make up a large percentage of renters, with 71.6% of millennials renting a home. And the escalating costs of renting are also eating into their ability to save.
- Lack of affordable housing
There’s a current trend among home builders to focus on luxury and multi-family properties instead of starter homes. Builders contend that the higher costs of getting permits and other building preparations have made the higher value luxury and multi-family properties more profitable.
On the other hand, most millennials now prefer to skip the starter home and wait until they can afford to purchase a permanent, family-sized home.
Owners of existing homes have also been reluctant to sell. For some, it’s because they owe more on their home than what it’s worth, while others are concerned about the lack of options for a new home to move into.
- Lifestyle changes
Millennials’ lifestyles are also weighing into the big picture. They tend to marry late, with the average marriage age now at 30 years, compared to 23 years in the 1970s. Marriage and starting a family are seen as important motivations to buying a home.
Additionally, millennials now have a more mobile lifestyle. As they are just starting out in their professional life, they recognize the possibility that they may have to relocate – perhaps more than once – to pursue a meaningful career.
