According to recent research, Millennials are still putting off the purchase of their first homes. Clearly, this lack of Millennial home buying has had a significant effect on the real estate industry.
The Millennial Impact
Millennials shying away from purchasing a home isn’t anything new and the reasons are still much the same: the Millennial generation does not feel it is financially ready to make a home purchase. As such, many are choosing to rent longer as they delay the home buying process. This lack of buying activity has had a clear impact on the real estate industry, with first-time homebuyers currently comprising just 32 percent of all buyers. This figure represents the lowest the number has been since 1987, with the historical average being 40 percent.
Currently, the median age for first-time homebuyers continues to remain pretty much the same as it has been for the past few decades. In 2015, the median age was 31-years-old, while the median age for first-time homebuyers was 30.6 in the early 1970s. Currently, two-thirds of Millennials have not reached that age. Yet, over the next decade, they are expected to form 20 million new households. Developers who are able to create affordable housing options may be able to tap into this vast market.
Millennials and Homeownership
Until recently, the predominant perception has been that Millennials are not interested in owning a home. A recent survey of 12,000 people conducted by Fannie Mae, however, has found that most respondents between the ages of 18 and 39 feel owning a home makes more financial sense than renting. Furthermore, 49 percent of respondents said purchasing a home was their next step. On the other hand, when asked why they weren’t purchasing a home, 57 percent of respondents cited financial reasons.
Many Millennials have also indicated that credit score requirements were stopping them from purchasing a home. According to data obtained from FICO, which is the company that determines credit scores, Millennials have good reason to voice this concern. With the stricter credit standards that have been put in place, most Millennials do not have the median credit score of 750 that is necessary to obtain a loan backed by Fannie Mae. Furthermore, one-third of Millennials do not have the minimum credit requirement of 620.
Student debt may also be playing a part in the Millennial struggle for homeownership, as student debt has increased by 56 percent in the past decade to reach an average of $28,950 per borrower. Data gathered in 2014 found that the average person with a bachelor’s degree is paying $312 per month toward student loans. With the estimated monthly income for 25- to 34-year-olds being $2,540, student loan payments amount for 11 percent of their income.
To address these issues, it is important for real estate agents to educate Millennials about their loan options.
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(all data current as of 5/25/2017)
Listing information deemed reliable but not guaranteed. Read full disclaimer.