What is the largest cohort of buyers in today’s housing market? It’s those 23 to 39-year-olds known collectively as Millennials. This generational group has outpaced Baby Boomers and Generation X in size and determination. They are finally entering the home-buying stage of their lives and their sheer numbers are changing the real estate market.
According to Realtor.com, Millennials make up a strong 53 percent of mortgage originations in today’s market. However, the overall rate of homeownership in America has dropped to 63 percent; for Millennials as a group, that percentage is lower, at 43 percent, making them lag behind their parents when it comes to purchasing a home.
To them, purchasing a home (or townhouse, or condo), is less of a status symbol and more of a necessity or rite of passage. To that end, they save something every month to realize their goal of homeownership. Of all Millennials who are saving, 75 percent save for retirement, 51 percent save for an emergency, and 32 percent save for a down payment.
According to Brookings Institute, the average Millennial has a net worth of less than $8,000. If you combine that information with the fact that Millennials tend to have student loan debts, and the fact that wages for them have been fairly flat, it becomes clear why there are fewer Millennials buying homes than their parents did at the same age. Plus, the prices of houses have continued to go up and out of the reach of many, not just Millennials.
Enter COVID-19. This is not the first recession these young adults have had to deal with. They “came of age” in the 2007 recession. It made them resilient and gave them the understanding of what a bad economy can do to families. Our current recession has eaten into their savings as they deal with losing their jobs, or being temporarily laid off, or furloughed. By and large, the money they saved for a down payment is going to make car payments and buy groceries. This means that their home buying experience may be months, if not years, down the road.
When they do buy, they are seeking slightly smaller homes. In contrast though, they want larger yards for pets and gardens and large, open kitchens. They look for housing in the suburbs, hoping to find a place where there is less congestion, where there are trendy places to go, eat, shop, and hang out. They look for homes near walking trails and open outdoor spaces. They want to be near to work, or near places where they can work remotely. In some geographic areas, they want to have outdoor activities relatively close by.
This generation numbers more than 90 million people; they are characterized by self-confidence, technology, social connection, and higher levels of education. They are thrifty, cautious, and realistic.
In summary, the largest number of people buying homes in the next 10 years will be Millennials. And the homes they want will look like this:
- Slightly smaller square footage
- Large kitchens
- Large yards
- Proximity to outdoor activities
- Close to walking trails
- Close to local shopping
- Close to work, or remote work locations
- Space for working at home, maybe even for more than one person
- Schools nearby
- Small-town feel, or an actual small town
- And probably located in a secondary market
If you’re seeking to invest in the next few years, keep these points in mind as you look for markets where the largest generational cohort of buyers are migrating. You can also consult with the experts at Paradyme Investments. We have a few developments already underway that tick all these boxes and are vetting more almost every day. We’ll be happy to answer any questions you might have.