Millennials have finally arrived — in their own homes. It hasn’t come easy to them. Millennials and younger people do want to buy homes, but they’re presented with an obstacle course along the way.
Of millennials, 65% believe buying a home is the key measure of financial success. Around 60% of post-millennials (Gen Z) agree. And they’re either buying, or trying.
What’s in the Way
For most, the issue is affordability. Specifically, the key hurdles on the way to homeownership are:
- Having too much debt and not enough income.
- Coping with the phenomenal surge in home prices.
- Preparing for the down payment or closing costs.
The real estate market is finally showing signs of cooling. Yet ownership is an increasingly difficult for younger buyers to achieve. The prices are pressing many to move to more affordable areas. Fortunately for some, they can — thanks to a culture shift to remote work.
Others have had to get creative, and chart non-traditional paths, such as co-buying their homes as tenants in common. Some could turn to relatives for financial help. Still others have raided their retirement accounts. Some managed to use credit cards to handle a portion of their home purchase funds.
And some hopeful buyers were just told to wait for the market to come back down to earth. As if.
Generations in the Mix
Most current buyers are part of the following age clusters:
- Baby boomers (born 1946–1964).
- Generation X (born 1965–1980).
- Millennials and post-millennials (born after 1981).
It’s the third group — millennial buyers and younger — that’s remaking today’s market. These younger cohorts tend to be well educated. Student debt has delayed home buying for most of them. At the same time, they are trying to navigate the economic uncertainty that lingers in the wake of the 2007-2009 financial crisis. Many graduated at a time when corporations and universities began systematically outsourcing tasks and staff positions.
The oldest millennials are past age 40 now. They do want to buy, they have struggled to buy, and their needs have become a powerful market force.
There is, of course, a subset of millennials and even younger buyers who defy the law of averages. In tech hubs such as Seattle, highly paid young buyers are successfully competing with older buyers who have had more time to accrue savings and equity. But the young tech professionals are exceptions, not the rule. Many of their peers across the country have to deal with much more daunting debt-to-income ratios.
For Many, Smaller Houses Are Must-Haves
People are not buying big homes the way they used to.
For one thing, millennials are conscious of their planetary footprint. More on that in a moment.
But avoiding big debt is reason enough to buy smaller. In 2021, the average millennial with a mortgage owed more than $255K in mortgage debt, and with mortgage rates surging since then, there’s only so far the average young buyer can stretch.
☛ Housing is expensive. Condos tend to be more compact and affordable. Here’s what kind of deed you’ll get if you buy a condo.
Smaller homes and condos are in higher demand than ever, and that preference will shape the way future generations view housing.
That noted, new generations of buyers do want to spend on what matters to them. Maybe that’s a smart home with appliances designed for efficiency. Maybe it’s a solar energy system, or a kitchen garden.
Increasingly, Buyers Are Serious About Sustainability
The new generations understand the importance of energy savings, low emissions, and local biodiversity. Many are willing to dispense with traditions they view as unsustainable.
The comforts of home, for many new buyers, include greenery, sunlight, space, and fresh air. The pandemic made these elements essential. Score extra points for the home with a trail entrance, or access to bike paths and walkable downtowns. Indeed, real estate websites now rank the “walkability” of a given property — that is, how easily a buyer could walk or bike to the local shops, trains, and trails.
Buyers’ preferences have been shaped by the pandemic as well as environmental concerns. People aren’t just buying homes. They’re buying space to work and learn from home, to receive clients, to exercise, and to enjoy nature. Houses and condos with patio space are in demand. Composting and gardening education is on the rise everywhere, as the younger generations strive to nourish pollinators and support urban and suburban biodiversity.
Inside the home, we’ll see a lot more recycled and fairly traded furnishings and earthy tones. Artisan, small-batch manufacturing is not just a trend. It is a generational commitment.
Technology Has Changed Everything
The state-of-the-art home has security features driven by artificial intelligence. Its major systems can be operated remotely, through a smartphone.
Technology lets people learn about the market on their own. (You’re using it now!) Younger buyers use it to empower themselves. In contrast, many older buyers look to their agents for information about the market.
Largely thanks to technology, younger buyers also have unique and flexible approaches to work. Stability means something different now than it did in decades past. What does this mean?
A younger mortgage applicant, who relies on 1099 tax forms to declare the year’s earnings, is no longer an outlier. Mortgage companies that used to discourage contract workers from borrowing now look for ways to approve gig workers, creators, and entrepreneurs.
In turn, artificial intelligence, and not just rigid FICO scores, will be informing the loan underwriters. This could help non-traditional earners qualify for loans.
The Takeaway So Far
What can we say about the way the real estate market is changing? We all know it’s getting more expensive. Beyond that, flexibility — in both financing and in home design — is the generational keynote. The millennial quest for health-conscious living and sustainability are changing expectations for home life. Architects, engineers, real estate agents, and now sellers are integrating sustainability and health-promoting amenities as selling points.
It’s clear that U.S. home life is evolving in promising ways. We just need to find ways to make it financially accessible to everyone who hopes to buy. The homeownership rate for millennials and post-millennials is still lower than it was for prior generations. A sizable number continue to rent or live with relatives, and not by choice. Because rent costs are unpredictable, they may face continued financial frustration throughout their adulthood.
At the end of the day, homeownership means a lot to the younger generations. It shouldn’t be so hard to attain.
Supporting References
Statista Research Department: Home Buyers in the U.S., 2021, by Generation (Jun. 14, 2022).
Tom Huddleston Jr. for CNBC.com: Millennials and Gen Zers Do Want to Buy Homes. They Just Can’t Afford It, Even as Adults (Jun. 12, 2022; citing a March 2022 YouGov survey commissioned by Bankrate).
Megan Leonhardt for CNBC.com: Meet the Middle-Aged Millennial – Homeowner, Debt-Burdened and Turning 40 (Mar. 29, 2021).
Deeds.com: How Younger Buyers Are Changing Home Preferences (Mar. 23, 2022).
Deeds.com: Boomer Buyers Are Still Beating Out Millennials (Nov. 24, 2022).
Deeds.com: Buying Real Estate – Are the Generations Really Different? (Mar. 9, 2020).
And as linked.
Photo credits: Andrea Piacquadio and Askar Abayev, via Pexels.