Millennials are fueling U.S. home purchases

Alex and Michelle Angert lived in the last years of their 20s without a permanent address. They moved out of a small apartment in Manhattan in 2018 and stayed in short-term rentals in many places in the US before going on a year-long honeymoon and traveling around the world. They started their trip in the Philippines.

When the plague stopped their trip in the middle of last year, Angert, 31, decided to take a public relations job in Richmond, Virginia. He and Ms. Angert, who is also 31 and works at a technology company that specializes in health, began looking for a home last spring. After losing many bids they submitted, they raised their budget, which stood at $ 400,000. In July, they paid $ 635,000 for a three-room farm in a wooded area near Richmond Country Club.

“I would have had all kinds of regrets in life if I had not been traveling,” Engert said. “But the feeling was that it was time to settle down and stick roots.”

For years, the common insight has been that the millennial generation, born between 1981 and 1996, will become a generation that will largely relinquish ownership of homes. Instead, since 2019, when they passed the Baby Boom generation and became the largest older generation in the U.S. numerically, they reached a milestone in the housing sector, with loans for more than half of all mortgages filed last year being of millennials.

The growing appetite of this generation for home ownership is one of the reasons many economists predict that the demand for home buying will remain strong for many years to come.

The housing market for sale has rarely been hotter than last year. The median price for a built house sold in October was almost $ 354,000, close to a peak and a jump of about 13% compared to the previous year, according to the National Real Estate Agents Association. To every corner of the US this year.

This craze has calmed down a bit in recent months. More buyers are delaying the search or giving up, discouraged by the high prices and low inventory of homes for sale, real estate agents say. Houses that will not repeat itself, and this caused a sales burst that in normal times would have spread over several years.

The effect of the corona on living habits

But most housing analysts do not anticipate a wave of house price cuts in the near future. They say the epidemic and the rise in remote labor have accelerated the trends of millennials buying homes that have already begun to happen anyway. Young families living in apartments decided to buy houses in the suburbs or leave the expensive cities for cheaper cities. Millennials who already had homes replaced them with larger homes. Avoiding student loan payments, federal aid checks and a vibrant stock market have helped some first-time buyers afford to pay an initial payment.

This generation was responsible for 67% of first-time home mortgage applications and 37% of repeat purchases in the first eight months of 2021, according to CoreLogic. And when the largest number of millennials have reached the age of 30 this year – slightly younger than the median age of 33 when buying a first home – those numbers are likely to increase. This is especially true because millennials get married and have children later in life compared to previous generations, and these are two events that can often encourage buying a home.

The financial conditions could hardly have been better for millennials, who faced a large capital gap compared to previous generations. With the burden of student loan debt and their career path shifted to the margins due to the 2008 economic crisis and the collapse of the housing market, many millennials did not have initial savings to spare in their 20s. Some of them did not think that owning a home was a worthwhile investment. Credit standards have become stricter after the collapse of the housing market, making it difficult for many young borrowers to be eligible for loans.

No longer just looking for experiences

Some mortgage brokers have proposed a theory that millennials would rather rent and spend money on trips and experiences than buy homes. “We’ve been talking for years about how millennials would rather ‘do’ than ‘have them,'” said Richard Robin, a real estate agent from a Wisconsin firm.

But sitting on the margins means losing one of the biggest sources of wealth creation in the last generation: home ownership. In 2019, older millennial households had a net worth lower than 11% of expectations based on capital obtained by previous generations of Americans of similar ages, while the net worth of younger millennials was 50% lower, according to the Federal Reserve. Saint Louis.

House prices have risen over the past year, raising questions about whether now is the best time to jump into the market. But buying a home is still more affordable for many buyers for the first time today than it was for previous generations, said Mark Fleming, chief economist at First American Financial Corp. This is because salaries are higher and interest rates have dropped from more than 10% in the 1980s to about 3% today.

A typical mortgage payment for a single-family home at a median price was 17% of the median family income in the third quarter of 2021, according to the National Real Estate Agents Association. This is a decrease compared to 23% in the 90s, so many of the baby boomers were in their 20s and 30s.

The main challenge for millennial home buyers, Fleming said, is not whether they can afford to buy a home unless they can win a war of bidding. The crazy market this year is particularly difficult for buyers who can only pay a small initial fee to compete. Home buyers for the first time often lose out to people who buy in cash or investors who buy to resell or rent out the homes.

The shortage of apartments is not expected to pass soon

The growing demand of millennials is happening in parallel with the shortage of apartments that does not seem to be going away any time soon. There were 1.25 million homes for sale at the end of October, down 12% from a year earlier. Mortgage financing company Freddie Mac calculated at the end of 2020 that the U.S. housing market lacks 3.8 million single-family homes compared to what was needed to meet demand in the country.

This mismatch provides a kind of floor for the market, an army of buyers ready to take action as soon as prices start to fall, say real estate agents and real estate executives. Plan to buy a home for a year to the next three years or as soon as they manage to raise money for an initial payment.Only 7% said they never plan to own a home.

“You can definitely have peak demand numbers” in the coming years, said Ryan Dobretz, portfolio manager at a company that invests in real estate companies, including construction contractors and land development developers. “It’s just because millennials are finally moving into family homes on a significant scale.” .

Mariel and Matt Blaben, who are 35 and 36, respectively, used to live in rented apartments for years, but when they had children, their perspective changed. When the plague came, Laban was pregnant with their second child, and they decided to move from California to Pennsylvania in order to be closer to their families. After reviewing more than 30 homes, their fifth bid was accepted last spring for a four-bedroom home in Wayne, Pennsylvania.

“My husband and I both grew up in houses with yards and neighborhoods and I think we both wanted her to be our daughters,” Belban said.

About 31% of older millennials and 43% of younger millennials today do not pay a mortgage but may be eligible for a mortgage, according to Freddie Mack’s credit card data analysis.

In the first eight months of the year, millennials made up the bulk of mortgage applicants in San Jose, California; Austin, Texas; And Seattle, all urban areas with a large number of technology jobs, according to CoreLogic. Millennials were also more than half of the seekers in more accessible markets like Pittsburgh, Milwaukee and Buffalo, New York, CoreLogic said.

“We have a lot of people who have chosen to rent for a much longer period than they would have done five or ten years ago,” said Dana Davis, a real estate agent in the Buffalo area. Homes are being bought for the first time in the range of $ 250,000 to $ 350,000. ”

Greater millennial purchasing power is beginning to change the face of home ownership in the U.S. The millennial generation has more black and Hispanic households than previous generations. About 45% of millennials are not white, compared to about 40% of the generation born between 1965 and 1980; And 28% of the baby boomers, born between 1946 and 1964, according to research firm Pio.

The rate of ownership of homes for white households is expected to continue to exceed the rate of ownership of homes of non-white households in the next two decades, according to the Urban Institute. But the number of white households is expected to decline between 2020 and 2040, the organization said, while the net increase in home ownership will be of non-white people.

Ownership of homes of people of Latin descent is growing at a record rate in the U.S. The number of Hispanic homeowners rose from more than 700,000 to nearly 9 million last year, according to a census compiled by the National Association of Hispanic Real Estate Experts, an industry group. Entered mostly by younger buyers: The median age of Hispanics in the U.S. was 30 in 2019, about 14 years younger than the median age of non-Hispanic white Americans.

Hebert Sumaylan, 31, joined hands with his mother Lord Smilane to purchase a three-room home with a pool and a separate garage adjacent to an apartment in Granada Hills, California, in February.

“I kind of feel like I owe it to my family, as an immigrant,” said Sumylan, who was born in Cuba. “I love being a homeowner … you end up with your mortgage, and it’s yours.”

By Editor

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