.png)
There are contrasting perspectives on millennials’ perspectives and behaviors toward real estate, particularly due to the unprecedented circumstances caused by the pandemic. On one hand, Apartment List’s 2021 Millennial Homeownership Report states that only 42% of millennials will own a home by 30 years old, lower than the 51% of Baby Boomers and 48% of Gen X. On the contrary, the 2021 Home Buyers and Sellers Generational Trends Report by the National Association of Realtors states that millennials comprise the largest share of home buyers at 37%.
With the economic changes influenced by the pandemic – rebounding employment rates and steep decline of interest rates – many millennials found that they can stretch their income and afford better housing.
But the fact remains that millennials are purchasing homes later in life as compared to previous generations, and for good reason! Let’s talk more about the mindset of millennial homeowners.
Why Millennial Homeowners are Moving Slower
Several economic and social factors influence millennials’ ability and decision to purchase a home later than previous generations, such as:
Affordability
The steep gap between income levels and the rising value of homes makes it difficult for many millennials to afford a home, especially if you factor in other debts that eat up the monthly salary. As a general rule, the mortgage payment should be a maximum of 25% of a homeowner’s monthly income; anything higher would suggest that they’re in over their heads.
Reportedly, 63% of millennials don’t have money saved up to pay for the down payment of a home. The good news, though, is that as of January 2020, the home affordability index across the country is above 100, according to the National Association of Realtors (NAR). This indicates that a household with a median income has just enough to buy a median-priced house.
As this index is the average throughout the US, it means that some areas are more affordable than others.
Student Loan Debt
One of the biggest sinkholes for millennials’ monthly wages is student loans. The burden of paying off long-term loans aggravates the financial condition of many young people in the workforce who already have limited disposable income due to low salaries and stingy raises.
At the start of 2020, total student debt in the US hit almost $1.6 trillion. Based on data from NAR, over 50% of home buyers under the age of 36 claimed that paying off student loans caused them to delay buying a home. This is verified by Apartment List, with data showing that college grads with student loans take over four years longer to save up for the 20% down payment on home versus college grads without student loans.
Aside from rising student debts, a Pew Research study found that external economic factors like the pandemic have caused 52% of adults between the ages of 18-34 to live with their parents.
Marrying or Starting Families Later
The past four generations have progressively been getting married later and later. Based on a study by Pew Research, only 46% of millennials have tied the knot and settled down versus 83% of the Silent Generation who got married when they were the same age, 67% for early Boomers, and 57% for Gen X. According to the 2018 US Census, the average age that people marry is 29.8 for men and 27.8 for women. This societal shift meant that young people tend to live longer with their parents or relatives instead of buying a first home.
Leapfrog the Traditional Starter Home
Millennial homeowners have different aspirations on what a first home should be. They are more patient and are willing to delay the purchase in favor of buying a home they truly want. According to a Zillow study, 47% of millennials who purchased homes chose the suburbs instead of rural or urban residences. This may be influenced by the shifting preference for bigger and more updated homes. However, 1/3 of millennials still reside in urban locations, which is still a higher percentage than other generations.
How You Can Afford to Become a Millennial Homeowner
While data shows that fewer millennials buy homes compared to the previous generations, that does not mean there aren’t any who own homes. It may seem like a big hurdle, but with proper financial planning and prioritization, it’s absolutely possible for a millennial to become a homeowner. Here are some simple tips to help you take the first steps towards buying your dream home:
Sort Out Your Debts
If you have any high-interest debts, work towards paying those off first before you start saving for a down payment on a house. Once the more expensive debts have been eliminated, you’ll have more wiggle room in your budget, and you’ll likely qualify for a better mortgage rate if you have fewer outstanding loans.
As a general rule, try to keep your debts to only 20-25% of your monthly income so that they are manageable to pay back on time.
Save Up for the Down Payment and Other Home Expenses
To make saving easy, pre-allocate a portion of your monthly income to go to your savings before you spend money on other expenses. You may also consider immediately shelving any overtime pay or bonuses so that you can meet your goals faster.
Your goal should be to save up for at least a 20% down payment so that you can bypass the private mortgage insurance, a fee charged by lenders to protect themselves just in case you are unable to meet future payments. Be realistic about how much you can afford to pay every month. Target a home that is a maximum of two to 2.5 times your income so that the overall cost remains manageable. Be prepared, as well, for all the other costs that come with owning a house – insurance, property taxes, utilities, etc.
Reevaluate Your Spending Choices
As with any goal or dream, some sacrifices must be made to get to the finish line faster. Get your finances in order by setting financial goals, prioritizing the necessities, and trimming the nice-to-haves. If buying a home is your top priority, you may have to postpone that big vacation or take public transport instead of getting a car. Consider reducing your current monthly housing expense by renting a cheaper place or moving in with a roommate.
Check Your Credit Score
A good credit score will help you qualify for a desirable interest rate on a mortgage and circumvent the PMI. While the required credit score to purchase a home can vary between lenders and loan type, a credit score of 760 and above will generally boost your chances. It’s best to check your credit score early on, even if you can’t afford to buy a house just yet so that you have time to improve it. Remember that building a good credit score takes time, patience, and consistency, so get started on this as soon as you can.
Your dream home might be closer than you think. Contact Las Vegas’ most trusted realtor to find the best home for you.
