Last week, the housing industry celebrated the latest NAR report that Millennials are finally making a move into housing, surpassing Baby Boomers as the largest generational segment of homebuyers, and responsible for 36% of home purchases in 2017.
However, upon further inspection, and as both NAR and National Mortgage News astutely called out, Millennials are still underperforming as homebuyers. After all, when you represent the largest population segment in the country and are in prime life stage for marriage and family formation, it is not too hard to overtake Baby Boomers, many of whom are downsizing, shifting to rentals, or moving in with their family. Homeownership rate among Americans under age 35 is currently at 36% (not to be confused with Millennials’ home purchase share, which is also 36%) according to the latest U.S. Census report. It is a substantial drop from the same age group’s homeownership rate pre-2008 housing crisis, at 43%. In other words, the housing industry has lost 1 out of every 6 under-35 homebuyers in the past decade.
The good news: Millennials’ desire to become homeowners remains high. In the latest ValueInsured Modern Homebuyer Survey, conducted in February, 77% of all American Millennials who do not currently own a home want to become homeowners, and 72% who don’t own a home believe owning is better than renting. The not so good news: as home prices heat up, Millennials’ enthusiasm to buy now and their confidence in buying as a smart investment have gradually dropped over the past year:
- Among all Millennial non-homeowners, only 35% now believe buying a home in America today is a smart and secure investment, representing a steady decline from 43% – a drop of 8 percentage point – in Q2 2017.
- During the same period, among Millennials who want to own a home, the desire to buy now if they could afford to also declined, from 74% to 68%, a drop of 6 percentage points. To reiterate, during the same period, the desire to eventually become homeowners did not erode, but the desire to buy now if one could finally afford it did fall from quarter to quarter. In other words, Millennials still want to own home eventually, but more are saying “not right now”.
Of course “if they could afford to” is a big if. Given high prices, many believe lower homeownership rate is a result of Millennials’ inability to afford a home. Or is it? Perhaps the culprit is not that simple. New studies now show home buying has actually become more affordable – one went as far as saying it is now most affordable in 40 years to buy a home – thanks to lower mortgage rates, lower down payment required and higher starting salaries.
Even if they could afford to buy – again perhaps a big if – many might be concerned about buying high. From Q2 2017 to Q1 2018, more Millennials who wish to buy expect a home price correction:
- In Q2 2017, 68% believed home prices would hold or increase their value in the next two years. Now, only 58% believe the same. Over 4 in 10 (42%) interested Millennial homebuyers now say they expect home prices to correct within 2 years.
- 68% now say they are concerned about buying high, an increase of 11 percentage points compared to 57% in Q2 2017.
At the current rate, we have a long way to go before bringing Millennial homeownership back to the pre-housing crisis level of 43%. We can start by convincing them that rates are still historically on the low-end or, even better, give them new solutions that make homeownership safer and more accessible. Bottom-line is that home buying needs to adapt to this new generation and help build up their confidence to get them off the sidelines and into homes.