The Answer May Surprise You
At 75 million strong* in the U.S. alone, the Millennial population makes up the most significant home buyer group today. And, that group is growing. How?
Several major constraints have limited Millennial buyers from purchasing homes thus far, but those challenges are resolving themselves slowly.
Four of the significant challenges which prevented Millenials from investing in real estate until now included:
High debt
Lack of savings
Gender Gap
Glass Ceilings
Let's dissect each and then cover why these limitations are beginning to wear thin.
*PEW Research Institute
Student Loans
The first significant challenge preventing Millenial buyers from buying more property is student debt. College tuition and room and board meant high post-graduation debt for 80's and 90's babies.
My generation was told we had to go to college to 'be anything I wanted to be.' At a minimum, we were constantly scheduled and trained to better ourselves, and for many of us, college was the natural path to try. And we're still paying for it.
Shortly before the first Millenial graduated, they had the luxury of witnessing the world crash in front of them as the Dot Com Bubble burst. They then faced the housing market crash of 2008, during which many found temporary refuge back at law, medical, business, and trade schools. These additional degrees meant deeper debt.
Yet the promise of more income with each degree was an empty one. The job market did not welcome all of these college-educated Millennials into jobs with salaries high enough to quickly pay off their debt. Thus, many of them are still paying off that debt, often making them a less attractive group to lend to and compromising their ability to save up for a down payment.
High Rents
Savings, or lack thereof, is the second challenge facing Millennial homeowners.
To pursue high-income jobs and the culture and comforts that Millennials demand, Millennials flocked to concentrated urban centers where the population density was high, and so were
the rents.
This left little opportunity to save and often enabled further debt accumulation.
Glass Ceilings
Both the first and second challenges share one thing in common. In Millenials' pursuit of 'pursuing their dreams of bettering themselves,' they limited themselves from living a more traditional American dream of homeownership.
Add a lack of upward promotion as babyboomers refuse to retire, and you literally have Mom and Dad and their best of intentions limiting their children from the fastest pathway to generational wealth; homeownership.
Last But Not Least, Gender Disparity
According to the National Association of REALTOR®'s (NAR) two-thirds of all Millennial home-buyers are female. That sounds like a positive thing, ladies, until you realize that most female homebuyers cannot spend as much on homes as their male counterparts. Why? Because we've been paid less throughout our careers.
Yes, ladies are more likely than men to realize that tending to financial health is self-care. But, it's hard to fill your financial cup when your paycheck is weak.
Millennials are buying despite these challenges. But as these challenges begin to dissipate we'll see many many more (not fewer) buyers enter the market. They just need a little help.
Help Is On The Way!
Debt Relief
One of the hottest topics in Washington currently is what to do about student debt.
Student debt was already on pause for many Millennials, thanks to the CARES act. For months many Millennials have been deferring student loans and either saving or growing that money through investments. Many of these investments accrued positive gains that far exceeded the accruing interest on loan payments.
If talk of forgiving part or all of student debt turns to action, the same Millennials, who found it difficult to save up to buy a home -because they were paying a significant portion of their take-home pay towards loans- will be able to put those payments towards homeownership permanently. Some already are.
Softer Rental Markets
Millennials suffering from high rent now have some relief.
Rental markets across many major cities softened over 2020. This allowed Millennials to renegotiate their leases or to move to lower-cost properties better or equal to the place they once lived. Many have furthered their savings by taking the difference in rent and putting it aside or using it to purchase stocks and mutual funds.
Those Millenials who moved out altogether - and worked remotely while bunking up with mom and dad - have further accelerated their ability to save. Many are out hunting for property today. I've worked with two so far!
Girlpower
Women Millennials are the primary buyers within this 75 million strong generation, and they're beginning to close the gender earnings gap. Every cent in their favor means a chance to save and the shot at getting approved for larger loans.
Bigger down payments and larger loans to the primary buyers in the market will absolutely have an impact on the overall costs of homes.
Plus, those females who have already invested will benefit from closing their loan to value ratio, eliminating private mortgage insurance, and paying off mortgages faster. This means more equity in their current home, which will allow them to out-buy their higher-paid (non-homeowning) male counterparts soon as well.
Not Even Remotely
Close to 30 million baby boomers retired in the third quarter of 2020 according to a recent Pew Research Center analysis. That’s 10% more than the same period in 2019.
If COVID didn't encourage enough Babyboomers to reconsider retirement, remote work will. As office jobs stay remote and depend on a workforce with an intuitive understanding of technology, Babyboomers who are still holding onto corporate jobs are beginning to let go of needing the office to realize self-value.
Those Babyboomers waiting on fulfilling retirement dreams of traveling and relocating
will take advantage as vaccines become the new normal and travel restrictions lift. These two trends combined will free up jobs and budgets for salaries.
When coupled with the savings corporations are making by freeing up finances once tied up in commercial leases, I believe we will see overdue promotions and raises made possible once again.
Millennials are also choosing to leverage their remote employment to relocate to more affordable pastures. This is causing skyrocketing property values in places you may not have expected like Boise, Idaho, for example.
Paging POTUS
Joe Biden campaigned on the promise to provide a first-time home buyer's credit of $15,000. Fifteen grand may sound like an arbitrary number, but it's a lot of buying power. I'll break it down for you.
First-time home buyers have access to first-time home buying programs through Fannie Mae and Freddie Mac, such as FHA loans. FHA loans permit down payments as low as 3.5%.
That means on the average $225,000 home, the necessary down payment would be $7,875. If you subtract that down payment from the $15,000 credit $7,125 remains to put towards closing costs.
According to BankRate.com, an average closing cost on an FHA loan is approximately 2-4% of the loan amount, in this scenario, a maximum of $8,684. To close on the home, the buyer would need just a tad over $1,500 out of pocket to close on a home.
How close are we to this happening? This April, United States Rep. Earl Blumenauer (D-OR) and Rep. Jimmy Panetta (D-CA) introduced the new legislation, dubbed the “First-Time Homebuyer Act.” The bill will provide a tax credit for first-time homebuyers of up to 10% of the purchase price, or $15,000.
To be clear, the $15,000 credit proposed is a tax credit and not an upfront grant. Yet, it would still be providing future homeowners with major assistance.
Musical Chairs
Millennials are the most significant portion of the remote workforce. Their unique skill set and their near intuitive understanding of technology make them uniquely positioned to work and manage others remotely.
In December, many remote workers learned that their new normal would continue throughout 2021 or even indefinitely.
This news meant that those same potential home buyers, formerly priced out of their current, high density, urban real estate markets, can now buy homes wherever they please. And this is having an impact on the market that I discuss in my annual market report, which you can read here.
Who's Buying All These Damn Houses?
I believe this new influx of buyers in your hometown crosses demographics but is spurred by a new buying generation.
If you're excited for this trend to continue, I have some good news. I believe the market growth you're seeing so far is spurred by the early adopters. Us 'Elder Millenials.'
If you're not excited about this change, hold on to your seats, an army is coming.
Who's buying all these damn houses? Millennials are. Blame the Boomers for having so damn many of us.
Voted Neighborhood Favorite by Nextdoor, Team Cool Murphy is a top-producing, licensed real estate team based in New Orleans, brokered by Cool Murphy, LLC.
Celebrated for her next-level creative approach to real estate, Elisa Cool Murphy is an award-winning, top-performing agent in New Orleans and the founder and leader of Cool Murphy, LLC.
Contact Her -
email: cool@coolmurphy.com
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phone: 504-321-3194
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