Much has been said and written about Millennial first time homebuyers and most of it is not necessarily flattering. Lots of writers have described this very large demographic as entitled hipsters still mooching off their parents and living in their basement. Well, if that’s still the way you think about Millennials, you are in for quite a surprise.
Millennials’ path to home homeownership has been fairly slow to date – sidetracked by high unemployment, student loan debts and other financial difficulties. But the tides are changing.
As the economy continues to recover and this generation becomes increasingly more financially savvy, we will see more demand for home ownership among this generation. In fact, a recent study by the National Association of Realtors already shows Millennials as the largest percentage of homebuyers and concludes that Millennial sentiment towards homeownership is also very strong, with the vast majority of these young adults considering a home purchase a good financial investment.
But while the interest in buying a home is there, millennial homebuyers still confront significant obstacles that must be addressed in order to unleash their full purchasing power.
To better understand this generation of homebuyers, we looked at data from more than 5,000 first time homebuyers (most of them Millennials) on our site and found their median income, credit score, down payment amount, available assets and how long they’re planning to stay in their properties. Here’s a brief snapshot of what we found:
Median Values for MortgageHippo First Time Homebuyers (Nationally)
|Years Planning to Stay in Home||9|
One of the biggest challenges that we see disproportionately affecting Millennial first time homebuyers is not having enough available cash for a down payment. As expected, we see this play out in the data.
According to the numbers, there’s very little difference between the amount of money Millennials plan to use as down payment and their available assets, showing perhaps one of two things: either Millennials have not saved enough money to purchase the home they want, or they are not finding homes within their financial means. As is often the case, the answer probably lies somewhere in the middle, but let’s focus on the savings problem for now.
Seeing such little difference between down payment amount and available assets is a concern because buying a home requires more cash than the down payment; you must be ready to shell out an additional 2 to 4% of the home price towards closing costs, as well as keep some financial reserves required by lenders to get a mortgage.
To get to the bottom of this problem requires peeling off yet another layer: why are Millennials not saving enough towards their down payment? Are they poor savers spending all their disposable income on trips around the world and cool tech gadgets? Are they still having difficulty finding good paying jobs?
Once again, the answer is not so black or white. I’m sure there are some poor savers among us, and I’m also positive that many are indeed finding it hard to secure good employment, but our bet is on the unattended massive student loan problem afflicting this generation of would-be homeowners.
Another interesting insight from this data is how long first time homebuyers plan to stay in the property. While the national average based on our data is nine years, we see that number go down significantly in metropolitan areas. For example, in the Chicago area where our company is based, the number of years first time homebuyers plan to stay in that home goes down to six.
While other studies have discovered that Millennials are more likely to skip the “starter home” than previous generations and instead delay their homebuying until they are able to buy a longer-term home, our data suggests that this phenomenon may not be as marked in metropolitan areas, where young professionals facing high rents in the city seem to prefer to buy a shorter-term home and then upgrade once they are ready to start a family and settle down.
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