Millennials, who have been nicknamed the ‘generation of renters,’ are proving the critics wrong this year when it comes to home buying. Almost 65 percent of millennials aged 21 to 34 looked at real estate websites and apps in August, according to realtor.com analysis of data from comScore and current population estimates. Additionally, when we focus on 25-34 year olds we find that this group is 70 percent more likely than the average adult to be currently looking for a home to buy on realtor.com.
Today’s new home sales data shows the most positive report so far in the housing recovery, underscoring a strong year in which total sales-to-date are up 9 percent. “While it is difficult to estimate the effect of millennial buyers in the new home market, one can infer that since prices over the year have trended towards the more affordable, that some of the growth in the new homes market is a result of builders providing more affordable supply,” says realtor.com Chief Economist Jonathan Smoke.
Millennials Are Driving First-Time Home Buying
In August, the market share of first-time buyers of existing homes increased to 32 percent, from a July rate of 28 percent, according to National Association of REALTORS. Smoke estimates that half of all home sales activity for the first half of the year can be attributed to first-time buyers and according to the NAR 2015 Home Buyer and Seller Generational Trends report, millennials comprise 68 percent of all first-time buyers.
“People who believe that millennials are disinterested in home ownership are grossly mistaken,” says Smoke. “This generation hit the job market during one of the largest recessions of all time and they’ve had to work hard to establish credit and save for a down payment. With the older segment just beginning to enjoy the life events that drive home ownership – marriage and children – now is the most appropriate time for them to consider home ownership, and that’s what we’re seeing.”
Indeed in a survey of active home shoppers this June and July conducted for realtor.com through the BDX Home Shopper Insights Panel, the top triggers for being in the market for a home cited by 25-34 year old home shoppers were the following:
- Increase in income (35%)
- Tired of current home (34%)
- Favorable home prices (32%)
- Favorable interest rates (28%)
- Increasing rent (22%)
- Change in family circumstance/composition (20%)
- Planning to increase family size (19%)
- Increase in family size (18%)
Top 5 Impediments to Buying for Millennials (August 2015 Realtor.com Survey):
But with first time home buyer market share still below normal levels of approximately 40 percent, there are still significant barriers of entry for millennials. “Despite the increased role of millennials in the housing market, setbacks still exist and are preventing first timers from making even more of an impact,” says Smoke. “As inventory returns to more normal levels, expect the blooming of millennial homebuyers to turn into a boom.”
When realtor.com asked older millennial home buyers what was impeding them from purchasing a home, respondents cited:
- 40% revealed limited supply (Have not yet found a house that meets needs);
- 37% says affordable supply (Cannot find a good house in budget range);
- 36% named time (Just starting to explore);
- 28% says down payment (Cannot come up with sufficient funds for down payment).
- 23% selected picking the neighborhood (Have not decided on a specific neighborhood/town);
Millennial Mortgage Statistics & Top 10 Markets:
Data produced by realtor.com in partnership with Optimal Blue, an enterprise lending service platform, also reveals that the key for millennial buyers who want to close on a home is to be very financially healthy with high FICO scores and low debt to income ratios. “This can be attributed to fact that 97 percent of millennials have to finance their home purchase,” remarked Smoke.
Average mortgage statistics for millennials in first half of 2015:
- FICO Score: 714
- Down Payment: 7.1%
- Mortgage Rate: 4.03%
- Debt-to-Income Ratio: 36%
Data for the first half of the year shows the top ten markets in which millennials represent high shares of purchased mortgages. “These markets underscore first time home buyers/millennial interest in growing, yet affordable, areas,” says Smoke.
1. Des Moines, Iowa: 59%
2. Provo, Utah: 49%
3. Baton Rouge, La.: 47%
4. Pittsburgh, Penn.: 47%
5. Lafayette, La.: 47%
6. Grand Rapids, Mich.: 46%
7. Madison, Wisc.: 46%
8. Clarksville, Tenn.: 45%
9. New Orleans, La.: 45%
10. Shreveport, La.: 44%
For more information, visit www.realtor.com.