The Millennial Generation, now in their late 20s to early 40s, are entering the housing market in higher numbers than ever before. Just a few years ago, this cohort was derided as forever renters or perpetually living at home with parents, but housing and mortgage statistics today indicate that many Millennials were simply waiting longer than their parents had to buy their first home.
The Millennial home buying process does look different from that of generations before. Listing and mortgage applications have moved online, so younger people can house hunt and secure financing from the comfort of their couch. Millennials are also looking for smaller homes and are more willing than Boomers to take a chance on a fixer-upper. But there are also many Millennial buying trends that mirror that of previous generations, including wanting a home in a safe neighborhood, with good schools, and room to raise a family.
State of the Economy and Millennial Home Buying
When the COVID-19 pandemic hit in 2020, the economic downturn took a toll on younger Americans. According to Pew Research, 52% of adults aged 18-34 are now living with their parents due to economic factors and the Covid-19 pandemic. Student loan debt, sluggish wage increases, and the high cost of rent all played a role.
The pandemic also drastically shifted our relationship to our jobs. Work from home policies eliminated the need to live in city centers. What followed was higher demand for homes in suburban areas and smaller cities. Better Homes and Gardens Real Estate The Masiello Group saw this play out in Northern New England, with an increase in home buyers from urban areas along the Interstate 95 corridor relocating to small towns and cities in Maine and New Hampshire.
As demand in the housing market shifted, so did the demographics of who's buying. Research from Zillow shows that half of all homebuyers in 2021 were under the age of 41 and the median age of home buyer was 36. According to the CoreLogic Loan Application Database, millennials made up 67% of first-time home purchase applications last year.
Despite economic setbacks, Millennials are finding ways to save for a home and are diving into the real estate market.
What Millennials Want in a Home
Surveys of Millennial home buyers show that affordability is the number one factor in buying a home and that they are willing to move to more affordable cities to get what they want. Counter to stereotypes about Millennials and their desire for big cities and apartment living, one survey showed that having a large yard and a quiet neighborhood were the top attributes Millennials are searching for.
Like many generations before, reaching the financial milestone of homeownership is very important to Millennials. According to Realtor.com, two-thirds of Millennials say the desire for homeownership is important.
"Millennials, it turns out, aren't that different from the Americans that came before them," said Chris Masiello, President and CEO of Better Homes and Gardens Real Estate The Masiello Group. "They want that piece of the American dream, and are seizing it, all while facing some challenges that are unique to their generation."
Millennials vs. Boomers
One of the more surprising statistics in Millennial homeownership is that these buyers tend to want smaller homes than older generations. Millennials are having smaller families and may not need the larger homes that were popular in the early 2000s. This generation also tends to be more environmentally conscious and may not want the impact (and expense) of heating and cooling a 2,500-square-foot home. Affordability is also a factor. If Millennials are looking for less expensive homes, smaller may be all that's available in their budget.
These smaller homes are also the same homes many Boomers are looking at when downsizing. One survey found Millennials are searching for a home, on average, that's about 1,700-square-feet in size, while Boomers are looking for a home around 1,900-square-feet.
This exacerbates an already tight inventory supply by up-ending the typical home lifecycle. For generations past, younger homebuyers could depend on a steady supply of new construction along with a number of homes up for sale that were previously occupied by older people now looking to downsize. New construction declined steeply after the Great Recession, greatly reducing inventory today. In addition, the Boomers are either choosing to stay longer in their family homes to age-in-place or are "downsizing" into the very homes Millennials are targeting.
"The lack of inventory, the high demand for those smaller starter homes, and the competition with older generations who have a lifetime of savings and accrued equity makes it very tough for Millennials to get a foothold in the real estate market," said Masiello. "They really need to do their legwork at the beginning of the home buying process to compete."
That work includes securing financing, knowing their budget, and working with a buyer's agent that can quickly notify home buyers when affordable options become available.