Expect First-time Millennial Homebuyers to Shape Real Estate Market in 2017
For much of the last few years, the conversation around Millennials (generally considered those born between 1980 and 1995) has been their inability to enter the housing market. With this age group burdened by student debt and limited job prospects, many economists believed that the lack of young, first-time homebuyers had a measurable impact on the speed of U.S. housing and economic recovery.
But throughout 2016, the conversation slowly began to shift. Market indicators and studies showed that Millennials were poised to enter the housing market once they were financially ready. A November economic forecast by the National Association of Realtors (NAR) showed Millennials may finally start entering the housing market this coming year.
Young Folks Want to Buy
Home ownership has been a part of Millennial long-term goals contrary to some misconceptions of the demographic. A 2014 study by LendingTree showed only 4.4% of Millennials who were not already homeowners never wanted to own a home. Non-homeowner Millennials reported that before they were ready to make a purchase, they needed a higher income, to first relocate to a preferred location, and pay off student loan debt.
Another LendingTree study conducted in March 2016 showed that there is a nationwide trend of young buyers returning to the housing market. The average age for Millennial homebuyers? Twenty-nine. According to the 2016 analysis, 41.36% of all mortgage requests through LendingTree came from applicants under 35 years old.
“The under-35 crowd had been, for some years, hesitant to enter the housing market, but we’re seeing that start to shift,” said Doug Lebda, CEO of LendingTree. “The data all points to the fact that Millennials are increasingly eager to own rather than rent, and even the incredibly high real estate prices in some markets don’t necessarily deter them.”
The average mortgage loan of Millennials at the time of the March 2016 study was almost $221,000 with average down payments of nearly $32,800.
This pattern of Millennials returning to the market is expected to continue into 2017 and likely grow.
The economy has improved over the past year, with unemployment rates falling to 4.7% in December, almost the lowest it’s been since 2007. Unemployment was 5.0% in December 2015. As more Millennials age and begin entering stable, well-paying careers, more of this age group will be able to make steps towards paying off student loan debt or begin saving. With more cash freedom, a significant volume of Millennials will begin taking steps to becoming first-time homeowners.
Millennial Strength in Numbers
Certainly a significant percentage of Millennials may still be priced out of the current housing market. In fact, many may still not feel the market has improved enough for Millennials when comparing historic ratios and percentages of homeownership. However, what matters more to the housing market is the gross volume of Millennial home owners, and less so the percentage of Millennials being able to enter the market.
Millennials are the nation’s largest living generation, with U.S. population estimates of 75.4 million as of 2015. They exceed the number of Baby Boomers, which account for 74.9 million.
By being such a large representative base of the population, and being such a significant volume of recent housing demand, expect builders to accommodate a significant amount of their supply inventory to cater towards Millennial needs.
2017 Housing Pattern Estimates
What does this mean for real estate and housing construction? Expect much of new construction to be cheaper, more affordable homes. This means townhomes and smaller, starter-type, single-family units and probably fewer multi-family homes that have dominated construction in recent years.
The question is will builders be able to create enough inventory to meet Millennial demand in 2017? If not, expect home prices to go up due to limited supply. For homeowners who own the types of homes that might meet this market demand, there’s potential for a significant increase in your home equity as higher demand push market prices up. These homeowners looking to sell may be able to make a significant profit.
Simultaneously, excess new home construction could make it more difficult to sell older or larger homes in local markets. Buyers may be keen to purchase a new construction that requires less maintenance for the same price. Unless your home offers a unique selling point, such a preferred location, competition from supply of new construction could impede your efforts to sell. If you plan to sell a home in 2017, work with a local realtor that understands your local supply and demand and pricing strategies. Savvy first-time buyers may look for these oversupplied markets and take advantage of homes priced to sell.
Millennials will be watching their budgets and be careful to not overextend themselves. Many are still wary of the market and memories of the recession have shaped their outlook and financial behavior. Still 2017, is shaping up to be a positive year for first-time homeowners.
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Mike Ouyang is an editor, writer, and PR Manager for LendingTree covering Millennial finance and autos. You can follow him on Medium @Mike Ouyang or on Twitter @MikeOuyangTweet. Please subscribe to the LendingTree publication on Medium for more content and news.
