Millennials now make up the largest proportion of the population in the US at over 80 million. With so many of these 20- and 30-somethings, one could only assume that they’d simultaneously make up a large part of the real estate market.
But that’s not necessarily the case.
Millennials are taking their time testing the waters of the housing market, for a variety of reasons.
A number of studies have shown that a large portion of millennials – also referred to ‘Generation Y’ – have plans to buy a home some time in the near future, but they’re not quite ready to take the plunge. Whether they’re currently renting or still living with Mom and Dad, the pace at which they’re entering the market is a lot slower compared to their parents’ generation.
So why is this demographic hesitant to jump into the world of homeownership?
They Don’t Have Sufficient Savings
Getting a mortgage to finance a property is pretty tough when your savings account is scraping the bottom and your student debt is sky high. That’s precisely where many millennials are finding themselves.
Most of the country’s $1.3 trillion student debt burden lies on the shoulders of younger Americans. And not only are Generation Yers working hard to pay down their debt, they’re not exactly having much luck finding a place that meets their budget.
With the current housing affordability crisis that’s plaguing many parts of the nation, being financially capable of affording a home is becoming increasingly difficult, especially for first-time buyers. Half of all millennials have less than $1,000 in savings, putting them in no position to be able to put a half-decent down payment on a home.
Lenders are a lot more strict with their lending criteria than they were before the financial crisis of 2008. And considering these young Americans have more debt and less income than prior generations, their debt-to-income ratios tend to be a lot higher than lenders expect.
Plenty of millennials graduated from school facing a tough job market, and even when they manage to land a good job, they haven’t experienced the income growth that would provide them with enough money to pay down student debt and save for a down payment.
There’s a Ton of Competition
Along with an affordability issue also comes a supply issue, especially in certain pockets of the country like San Francisco and Seattle. And as inventory fails to keep up with demand, prices jump. It’s tough for millennials who are just getting into the real estate market for the first time to find their way in, especially when more and more of the competition is waiving financing contingencies and even going so far as to pay all-cash.
In fact, over 38 percent of single-family home and condo sales as of November 2015 are all-cash transactions. That’s a tough one for any buyer to compete with, let alone a young buyer within minimal savings and a ton of debt yet to pay off. Even with a good credit score and an adequate down payment, it might not be enough when competing with people with cash.
They’re Getting Married and Starting Families Later
Unlike their parents’ generation and those before them, millennials are waiting a lot longer to tie the knot and start families. From the change in culture to the volatile economy, this demographic just doesn’t have the same pressing desire to make such important commitments.
Younger people today are extremely cautious about entering relationships because they’ve seen so much divorce – they’ve been born into and grown up around it. Postponing commitment is becoming more popular, so bad relationships are more likely to end before marriage.
According to research from Pew Research Center, 26 percent of Americans between the ages of 18 to 33 are currently married. That’s much lower than the 48 percent of Baby Boomers and 65 percent of the Silent Generation who were married within the same age range.
And with fewer millennials making the leap into married life, they’re less likely to get into home ownership so soon. According to TD Bank, millennials are less likely to buy a home without a partner or spouse compared to first-time homebuyers from generations past.
The Bottom Line
There’s no doubt that millennials are getting a delayed start to entering the housing market. With mounting student debt, minimal savings, and lack of financial experience, there’s certainly some work that needs to be done. But with the right plan of action guided by a seasoned financial advisor, there’s no reason why millennials can’t put themselves in a stronger financial position and prime themselves to become homeowners sooner rather than later.