Because of our sheer numbers, we millennials tip pretty much any scale we touch, whether it’s the housing market or the wine industry. (We’re drinking more of it, but we prefer the cheap stuff.)
That’s why Gen Y is either thanked or scolded for most major market moves. A year ago, millennials were “dragging down homeownership”; this year we’ll “make it easier for you to buy a house.” Either way, as the older tier of the generation rounds into their early 30s, millennial homeowners are turning out more than ever before.
And we’re a really weird brand of home buyer.
Millennial homeowners are saddled with obstacles no previous generation has had to face, like an average student loan debt per borrower that’s both monstrous and unprecedented. They’re also less romantic about the whole process than their predecessors — buying before marriage, owning for shorter periods of time, and flipping with gusto and success.
The country will soon get used to it. For the second year in a row, we represent the biggest group of home buyers in America, 32% of the market, according to a March 2015 report from the National Association of Realtors.
This number is only going to go up in the coming years. According to the 2015 TD Bank Mortgage Service Index, 50% of millennials say they are either “extremely” or “very” likely to buy a house in the next year.
“Millennials will have a huge impact on the housing market for the next decade, just because of demographics alone,” Nela Richardson, the chief economist for Redfin, told me. “So whatever a few of them do, there’s enough of them that they’ll make a big impact.”
What enough of them are doing is making home buying pedestrian. And, at least for our generation, that’s a smart move.
A Different Kind of Home Buyer
A more accessible job market, a later marriage age and the mammoth costs associated with a wedding have meant many new home buyers are putting a mortgage before a marriage.
Chantel Bonneau is a wealth management advisor for Northwestern Mutual and a Gen Y-er who bought her first condo by herself at 24. (Three years later, her second home purchase is in escrow.)
“A lot of millennials are delaying marriage and children by almost a decade, as opposed to people maybe 30 years ago,” she told me. “That just gives you a different phase of your life where you’re earning, you’re focused on your career, but maybe we don’t have all the same responsibilities as parenthood or marriage yet. So that creates this new decade of life for some people — it means life choices to postpone some of those other relationship decisions.”
It’s a life choice many are making. A recent Redfin study found that 38% of millennials have or would delay a wedding or honeymoon in order to buy a home.
That means several things; for one, millennials are looking to buy for utility and own for shorter periods of time — “they’re not really focused on buying the house that they’re going to live in forever,” Bonneau explained. For another, they’re looking at their purchases more as an investment than a place to live.
That’s affecting the kinds of homes Gen Y-ers are purchasing, Richardson told me.
“We know that a lot of millennials want to live in the city, they want to live close to work, they want to live in walkable neighborhoods — and guess what? These neighborhoods are great investments,” Richardson said. “The millennials I’m profiling are typically not the ones buying large McMansions in the suburbs that will take longer to pay. Many of them are buying condos in the center of cities.”
That was the case for Hanna Johansen, a 23-year-old digital marketing strategist in Des Moines, Iowa, who bought her first home with her 22-year-old boyfriend several months ago.
“Our home is more of an investment property for us,” she said. “We purchased our house with the intent of improving it and making a profit, while also increasing our credit score and credibility with the bank. We did a lot of renovation in the first month and a half before we moved in, and we will continue to make improvements over the next year, which is when we plan to list it.”
That kind of quick turnaround — once cautioned against by most financial advisors — is again trending among home buyers, said Michael Slavin, founder of Privlo, an alternative mortgage lender that caters to millennials.
“When you look at the average life of a home loan, it still ranges in the five- to seven-year range. It’s a lot more transactional than it used to be,” he said. “That’s where I think we are very different than baby boomers. We don’t stay in the job until we get the golden watch after 40 years. … Millennials — all of us, really — like upward trajectory in our jobs; we like to go to a job, really, really do well, get an advancement in our actual title, and then say ‘OK, now I’m ready to be in the market again.’ We might meet somebody on Tinder or Match and just have to go there.”
The Unique Obstacles to Gen Y Home Buyers
Unfortunately, because more of us are short-term buyers, millennials are competing with investors for similarly priced homes — and are at a serious disadvantage.
“While the investor share has dropped in recent years, we do still see a high share of investors in the market,” said Jessica Lautz, director of survey research and communications for the NAR. “The investors could be coming in paying all cash for a home, where the Gen Y-ers wouldn’t necessarily have [all that] cash on hand and would be financing that through a mortgage.”
Samantha Hill, a 25-year-old director of marketing in Seattle, had this problem when she was shopping for a home with her husband.
“We bid on several homes over the course of a year,” Hill said. “We were outbid by cash buyers every time. Every home we wanted had well over a dozen bidders.”
And then there’s the down payment: often a struggle for home buyers in any generation, and a huge problem for a generation that is saddled with an unprecedented amount of student loan debt — about $28,400 per college graduate, on average.
“The good thing is there’s lots of financial institutions that have designed special programs for first-time buyers where down payment requirements are less than historically required,” Malcolm Hollensteiner, the director of retail lending sales and production at TD Bank, told me. “Those options are plentiful throughout the industry right now.”
This was Hill’s recourse; she took advantage of a USDA loan on a property in the country — no down payment at all. “We bought at the end of the recession, so list prices were higher than previous selling prices. Because of this, we appraised $40,000 lower than asking and the sellers accepted,” she said.
Tips for Millennial Homeowners
Gen Y-ers shouldn’t let their aspirations of homeownership give them financial tunnel vision, Bonneau told me.
“It’s not OK to ignore proper risk management, an emergency fund, utilizing your 401(k) match, just because you’re so singly focused on buying property,” she said. “It is much more exciting, potentially, than saving for 40 years down the road, but it’s the responsibility of forward-thinking millennials to not be thinking of just property now and throwing caution to the wind in terms of everything else.”
On top of contributing to your regularly scheduled savings goals, Bonneau said, millennial homebuyers should also keep a buffer for the various unexpected fees that come with new property.
“You have to understand the property tax in your area, are there HOA or maintenance fees, if you’re part of an association,” she said. “If you’re part of an HOA, they have the right to potentially ask you for more money above and beyond if they decide to embark on a big project like repainting the whole complex. Obviously if something breaks, it’s on you — you’re the landlord now. … You have to do your due diligence when it comes to what you’re buying.”
That due diligence extends to life insurance, too, which Bonneau said she purchased for herself to make sure there would be no scenario in which her parents would inherit her debt.
April Masini, author of the advice column “Ask April,” added that unmarried couples buying a house have one last document to sign after the insurance and mortgage papers.
“Prenups are not just for married couples,” Masini told me. “Having a written agreement before cohabitation commences, when there is real estate involved, is always a good idea.”
It’s an unromantic process, to be sure — flipping a house, legally promising to divide assets equally, finding a condo within your budget. But the dream of homeownership hasn’t been lost amid the pragmatism of Gen Y-ers. The desire to own a home of your own remains the No. 1 reason people buy houses across all generations, according to the NAR, far more so than financial incentives.
For Johansen, and many other millennials, buying a home was both a milestone and a badge for her relationship. With the help of family members and an odd, instructional video on YouTube, she and her boyfriend have been renovating their new purchase.
“We have learned a lot about give and take, good communication and budgeting,” she told me. “I think we also both really respect the hard work and skill set each of us bring to the table. It is so amazing to look at a successfully completed project and say, ‘We did that!’”