According to a new study from Urban Institute, there are over 19 million millennials in 31 cities who are not only ready and willing to become homeowners, but are able to as well! Now that the largest generation since baby boomers has aged into prime homebuying age, there will no doubt be an uptick in the national homeownership rate. The study from Urban Institute revealed that nearly a quarter of this generation has the credit and income needed to purchase a home. Surprisingly, the largest share of mortgage-ready millennials lives in expensive coastal cities. These cities often attract highly skilled workers who demand higher salaries for their expertise. So, what’s holding these mortgage-ready millennials back from buying?
Myths About Down Payment Requirements!Most of the millennials surveyed for the study believe that they need at least a 15% down payment in order to buy a home when, in reality, the median down payment in the US in 2017 was just 5%, and many programs are available for even lower down payments! The study goes on to point out that:
“Despite limited awareness, every state has programs that provide grants and loans to make homeownership more attainable, with average assistance in various states ranging from $2,436 to $21,171.”
Bottom LineWith so many young families now able to buy a home in today’s market, the demand for housing will continue for years to come. If you are one of the many millennials who have questions about their ability to buy in today’s market, let’s get together so I can assist you along your journey!
I Would Buy Now!
- The cost of waiting to buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.
- Freddie Mac predicts interest rates to rise to 5.2% by the third quarter of 2019.
- CoreLogic predicts home prices to appreciate by 5.1% over the next 12 months.
- If you are ready and willing to buy your dream home, find out if you are able to!
- According to a new survey from Open Listings, 62% of Americans ages 25-54 believe that buying a home is more stressful than planning a wedding.
- Many young couples are saving for a wedding and a home at the same time.
- The average US wedding now costs 66% of a median home down payment, according to The Knot.
There are many things that factor into the decision to buy a home. New research from the Urban Institute suggests that one of those things may be inherited from your parents.
Children are More Likely to Own a Home if Their Parents DidAccording to an analysis of millennial homeowners, the homeownership rate of those whose parents rent their homes is 14.4%, while the rate amongst millennials whose parents are homeowners is 31.7%!
“A young adult’s odds of homeownership are highly correlated with their parent’s homeownership. Without controlling for such factors as age, income, education, marital status, and race or ethnicity, there is a 17 percentage-point gap between the homeownership rate for young adults whose parents are renters and young adults whose parents are homeowners.”The study also revealed that as a parent’s net worth increases, so does the likelihood that their child will own a home. These two findings are not surprising as we know from the Survey of Consumer Finances that a homeowner’s net worth is 44x greater than that of a renter. So, a parent who is a homeowner will have more wealth which will, in turn, increase the chances that their children will own their own homes in the future. Below is a breakdown of the relationship between a parent’s wealth and a millennial’s likelihood to own a home. The Good News: The high homeownership rate amongst baby boomers (likely the parents of many millennials) is a great sign that millennials will want to own homes. We are already seeing this in the high-demand environment that we are currently experiencing in the starter and trade-up markets.
Bottom LineEven though millennials took longer than many of the generations before them to start home searches of their own, the data shows that they will not be waiting much longer!
You read that right! First-time buyers across the country are getting creative when it comes to saving the necessary down payment to buy a home. Many couples are asking their wedding guests to contribute to their “Down Payment Fund” rather than fulfilling a traditional registry. This is fueled by the fact that many couples live together prior to marriage and already have the necessary items to make a house a home…they just need the house! The average wedding in the United States has 120 guests who give wedding gifts valued, on average, at $186. This means that couples could walk away from their nuptials with over $22,000 towards their down payment! Services like HomeFundMe allow friends, family members, and almost anyone else in a buyer’s network to contribute funds toward the buyer’s down payment. Contributors can determine, at the time of their donation, if their gifts are ‘conditional’ or ‘non-conditional’ on the beneficiary buying a home. According to a recent Wall Street Journal article, “about 400 borrowers have used HomeFundMe to help buy homes since the program launched in October and on average, they raise about $2,500.” The article went on to explain that most borrowers use these funds in combination with their personal savings to shorten the time needed to achieve their goal of homeownership. There are more and more programs surfacing from lenders that allow buyers to put down as little as 3% to buy their dream home. Fannie Mae and Freddie Mac loan programs require 3% down payments, while FHA programs require as little as 3.5%, and VA Loans are often approved with 0% down!
Bottom LineGone are the days of 20% down or no loan! If your dreams include buying a home of your own in the next year, you can get creative with your down payment savings to make it happen!
It should come as no surprise that buying a home in a good school district is important to homebuyers. According to a report from Realtor.com, 86% of 18-34 year-olds and 84% of those aged 35-54 indicated that their home search areas were defined by school district boundaries. What is surprising, however, is that 78% of recent homebuyers sacrificed features from their “must-have” lists in order to find homes within their dream school districts. The top feature sacrificed was a garage at 19%, followed closely by a large backyard, an updated kitchen, the desired number of bedrooms, and an outdoor living area. The full results are shown in the graph below. Buyers are attracted to schools with high test scores, accelerated academic programs, art and music programs, diversity, and before and after-school programs. With a limited number of homes available to buy in today’s real estate market, competition is fierce for homes in good school districts. Danielle Hale, Chief Economist for Realtor.com, explained further,
“Most buyers understand that they may not be able to find a home that covers every single item on their wish list, but our survey shows that school districts are an area where many buyers aren’t willing to compromise. For many buyers and not just buyers with children, ‘location, location, location,’ means ‘schools, schools, schools.’” (emphasis added)
Bottom LineFor buyers across the country, the quality of their children’s (or future children’s) education ranks highest on their must-have lists. Before you start the search for your next home, let’s get together to discuss the market conditions and school district options in our area.
The Wave of Millennial Homebuyers Continues to Swell!Many have written about the millennial generation and whether or not they, as a whole, believe in homeownership as a part of attaining their American Dream. Comparatively speaking, millennials have taken longer to obtain traditional milestones (like getting married, having kids and buying a home) than generations before them, but that does not mean that they do not aspire to still achieve those things. For older millennials (aged 25-34) who have established themselves in their career and are starting to build their families, homeownership is the next logical choice. According to the Urban Institute’s State of Millennial Housing, the probability of a millennial becoming a homeowner increases by 17.9% if they are married, and an additional 6.2% if they have children. Last year, according to the US Census Bureau, the average age at first marriage was 30 for men and 27 for women, while the National Association of Realtors (NAR) reports that the average first-time homebuyer was 32 years old. With most of this generation having yet to age into the ‘Responsibility Zone’ (the time in their lives when their responsibilities start to dictate their behaviors), there will be a steady wave of buyers for years to come! Those who are currently out in the market searching for a home are being met with a strong, highly competitive seller’s market. NAR’s Chief Economist Lawrence Yun recently commented,
“Realtors® throughout the country continue to stress that there’s considerable pent-up demand for buying a home among the millennial households in their market. Unfortunately, they’re just not making meaningful ground, and continue to be held back by too few choices in their price range, and thereby missing out on homeownership and wealth gains.”
Bottom LineIf you are currently renting and thinking about jumping into the real estate market this year, let’s get together to help you navigate our market.
In a CNBC article, self-made millionaire David Bach explained that: “Buying a home is the escalator to wealth in America. Homeownership can also help you retire early, that is, if you pay your mortgage off.” Bach suggests that homebuyers should, “Take out a 30-year mortgage, but with the intention of paying it off in 25, 20 or ideally, 15 years.” How does he suggest you do this? Here’s the secret:
“…If you were paying $1,000 a month, now you’re going to make $1,100 payments every month. Inform the bank that you are doing this and that you want the extra $100 a month to be applied to the principal (not the interest).”
What will happen to your mortgage?Bach explains that, “If you keep this up, you’ll wind up paying off your 30-year mortgage in about 25 years. Increase your monthly payment by 20 percent, and you’ll have that mortgage retired in about 22 years.”
Bottom LineWhenever a well-respected millionaire gives investment advice, people usually clamor to hear it. This millionaire gave simple advice – buy a home and pay off your mortgage early so that you can retire sooner with the money you will have saved!
Who is David Bach?Bach is a self-made millionaire who has written nine consecutive New York Times bestsellers. His book, “The Automatic Millionaire,” spent 31 weeks on the New York Times bestseller list. He is one of the only business authors in history to have four books simultaneously on the New York Times, Wall Street Journal, BusinessWeek and USA Today bestseller lists. He has been a contributor to NBC’s Today Show, appearing more than 100 times, as well as a regular on ABC, CBS, Fox, CNBC, CNN, Yahoo, The View, and PBS. He has also been profiled in many major publications, including the New York Times, BusinessWeek, USA Today, People, Reader’s Digest, Time, Financial Times, Washington Post, the Wall Street Journal, Working Woman, Glamour, Family Circle, Redbook, Huffington Post, Business Insider, Investors’ Business Daily, and Forbes.
Since the beginning of the year, mortgage interest rates have risen over a half of a percentage point (from 3.95% to 4.52%), according to Freddie Mac. Even a small rise in interest rates can greatly impact a buyer’s monthly mortgage payment. First American recently released the results of their quarterly Real Estate Sentiment Index (RESI), in which they surveyed title and real estate agents across the country about the impact of rising rates on first-time homebuyers. Real estate professionals around the country have not noticed a slowdown in demand for housing among young buyers; nearly 93% of all first-time homebuyers last quarter were between the ages of 21-35. The largest share of buyers (51%) coming from those aged 26-30. First American’s Chief Economist Mark Fleming had this to say,
“On a national level, mortgage rates would need to hit 5.6%, 1 percentage point above the current rate, before first-time homebuyers withdraw from the market.”
So, what is slowing down sales?According to the last Existing Home Sales Report from the National Association of Realtors, sales are now down 3.0% year-over-year and have fallen for the last three months. If rising interest rates aren’t to blame, then what is? Fleming addressed the cause, saying that:
“The housing market is facing its greatest supply shortage in 60 years of record keeping, according to the Federal Reserve Bank of Kansas City. The ongoing housing supply shortage will make it difficult for first-time buyers to find a home to buy, even when they are financially ready.”Bottom Line First-time homebuyers know the importance of owning their own homes. A spike in interest rates is not going to keep them from buying this year! Their biggest challenge is finding a home to buy!
Don't get too close!
- “The majority of millennials said they consider owning a home more sensible than renting for both financial and lifestyle reasons — including control of living space, flexibility in future decisions, privacy and security, and living in a nice home.”
- The top reason millennials choose to buy is to have control over their living space, at 93%.
- Many millennials who rent a home or apartment prior to buying their own homes dream of the day when they will be able to paint the walls whatever color they’d like or renovate an outdated part of their living space.