How Millennial Demand is Transforming Real Estate
Millennials are approaching home buying in different ways than generations before
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The Millennial Generation-- roughly those born between the years of 1981-1997-- are beginning to enter the real estate market. They are quickly going to over take the Boomer Generation as the largest adult generation. This is great news for the real estate market-- tapping into the home buying capacity of such a large generation should prove to be exciting. But it hasn’t all been easy going for this generation-- many of whom still do not own their own home, but would one day like to. In this article we’re going to discuss how this emerging demand of millennial home buyers is causing a transformation within the real estate market.
Who are Millennials?
This generation has been locked out of home buying
This generation was born between the 1980s and 1990s-- and at the high end can be around the age of 37 and at the low end around the age of 22. This is a rather large swath of humanity-- and no matter what experts like to think-- it is not useful to create overarching stereotypes of an entire generation. They have been labeled as lazy and extremely narcissistic-- but also are the most educated of all the generations and the most open minded to alternative life situations.
This could be why they are also referred to as the Boomerang Generation-- due to the crushing student debt, inflation, and stagnation of wages-- many have had to resort to returning to home to live with parents. This has made a significant impact on the real estate market for years-- there are a whole lot of people out there who want to buy a home, but cannot afford to.
Why are they just entering the market now?
Although they do want to own a home, many have been forced to rent
There are a variety of reasons why many millenials have not been able to purchase a home yet. Some prefer to live in a more urban setting while others might feel that there are more important milestones to reach first. However there are some common reasons seen amongst this generation as to why they have delayed owning a home:
- Student Debt. As the most educated generation so far, most millennials have gone to college and accumulated an amount of student debt. They may have also gone onto graduate school, law school, or medical school-- further compounding the amount they owe. The rising cost of education has played a large part in millennials being forced to finance their education through loans-- loans that need to be paid back with interest.
- Delaying Marriage. Millennials are also the first generation to delay marriage significantly-- in most cases into their 30s. Studies show that marriage can increase the chance of owning a home-- but many millennials simply aren’t interested, aren’t ready, or don’t believe they are at that point in their life.
- Opting to Rent. If they are currently renting, many millennials find it extremely difficult to save up for a down payment at the same time. Their rents are increasing-- as well as the cost of living-- and the wages they make just don’t seem to be keeping up. If they do happen to live at home, many still find it hard to save up-- as the job market is extremely competitive. They tend to be underemployed or working a part time schedule that comes with a reduced income.
Millennials shop for homes differently
Millennials have ushered in new ways for home buying
Although many still find themselves not able to afford a home, there are a good number of millennials who have been able to do it-- and have transformed the process in the meantime. The older members of this generation remember what life was like before the internet and cell phones-- but the younger half have known nothing but instant access to information. The real estate market has had to adapt to this-- as the customer has certainly changed from what it was 20 years ago. Today, millennials expect to be able to compare houses or loans from the palm of their hand. Almost all of them use the internet to browse for possible homes-- using email to seamlessly connect with agents or sellers. They are also more open to using virtual technology to look at the layout of homes-- possibly in another city.
Perhaps the biggest change in shopping for homes pushed by millennials is that now it is possible to apply for and compare mortgages. Before, this was the most confusing and time consuming part of the home buying process. It still can be, if you choose to go the traditional route. The technology is there and readily available, and this generation has chosen to use it.
What about down payments?
The amount of a down payment can vary
Millennials have had to delay home ownership due to a variety of factors, including the lack of a down payment many banks require for a mortgage. This is all changing says real estate expert Samantha DeBianchi. She sees trends that loans are being accepted with as little as 3% of the price of a home for a down payment. Millennials may have a good job and decent credit, but homes have been continually out of reach for them. This is due to their high prices and banks’ rigidity on the amount of a down payment. Now, there is a market for mortgages that is more friendly to how millennials have been able to save their money.
She goes onto to say that, “They don’t want to spread themselves too thin because they need to afford furnishing that house [and] other items.”
What kind of homes do they want?
If they do find a home, what are the important features?
Millennials are also interested in certain types of homes-- there are characteristics which they want to make sure they check off before buying. As far as other home buying generations go, they are particular and usually have a certain set of standards in mind before considering any home.
- Eco-Friendly. A lot of millennials are concerned with whether or not the equipment and installation tools used in the construction of a new home are sourced properly and are eco-friendly. They also want to make sure their home is equipped with environmentally friendly appliances.
- Updated. Most millennial homebuyers are not looking for a fixer-upper-- they want something that has been recently updated. This means either with new appliances or with a kitchen, bathroom, or flooring makeover. Even if they wanted to do a renovation project, most simply just do not have the time because of work and other familial needs.
- Connectivity. Gone are the ideas of gated communities and walled off housing units. Millennials want to be connected to their neighbors and to the world around them. This also means a connection to parts of their community such as restaurants, parks, and shopping.
Millennials rely on their real estate agents
Not to worry, real estate agents aren’t going anywhere
With the digitization of both home browsing and mortgage applications, you might think that digital real estate agents were next. This doesn’t appear to be the case, however. As opposed to other generations, millennials rely heavily on the advice and recommendations of their real estate agents. This could be because about 50% of their agents were found through the recommendation of a friend, family member, or colleague-- so their advice tends to hold more sway.
In addition, a lot of millennials think they can be indecisive at times, and really appreciate the recommendation and opinion of an experience real estate agent-- especially one that they have a connection to. Because most millennials are first time home buyers, they also tend to rely upon the agent to to find suitable properties and do all the leg work necessary for setting up showings. Even after conducting extensive internet research, a home buyer still does not have all the tools and information that is readily available to real estate agents-- especially when it comes to housing markets and price fluctuation.
What does this mean for the future of home buying?
Will the market adapt to millennials and Gen Z?
It’s no secret that millennials have changed the way people buy homes in the United States. They have digitized and streamlined a once cumbersome and confusing process-- all while forcing loan companies to meet their lower down payment demands. The societal forces that caused millennials to enter the housing market later-- student loan debt, delayed marriage, lack of savings-- can also be to their benefit. The real estate market has been making changes and learning to adapt with the way that homes are bought-- and sold.
But what about the generation that comes next-- Gen Z? This generation was raised on the internet and social media-- and grew up with constant feeds and updates. They will force the market to change yet again, and again, hopefully this will be for the better.
Millennials have had their share of hardships to endure along the road to home buying-- but can be credited with changing the way this process is done. They have been confronted with obstacles never before seen by past generations-- but still, most of them hope to one day own their own home.