Hey Millennials, Stop Ruining the Housing Market
Picture this: After another hard week of bankrupting a department store and single-handedly ruining the wholesome industry that is the diamond trade, another typical millennial sits down to brunch. Between bites of avocado toast, they declare, “To hell with the housing market. I’m going to rent forever on purpose!” Another millennial at the table agrees, “Who needs payment stability and wealth building? I’d rather be online shopping.” On the other side of the Scottish-Asian fusion gastropub another group of millennials is singing the praises of massive student loan debt and how it forestalls them having to grow up already as they chug frosé and instruct the waiter to add a fried egg to every single dish they order.
Actually, millennials have been the largest group of homebuyers four years running, making up 34 percent of the housing market, according to the National Association of Realtors. Perhaps you’ve already suspected this, given the proliferation of friends’ Pinterest boards devoted to housewarming party ideas.
But every week there seems to be yet another study on millennials and housing and no one can exactly agree on what you want—or if you even want it at all. And since we’re pretty sure you can’t make an informed life decision without some media-driven statistical analysis, we’re going to round up some of those studies for you now so you can finally know what you want out of real estate.
Millennials would rather rent
According to a 2015 joint study by EliteDaily and Millennial Branding, 59 percent of millennials would rather rent than buy. And why wouldn’t you? With rents rising in 92 out of 100 major U.S. cities, and with a national increase of 2.9 percent year of year according to Apartment List, renting is like a super fun game of financial roulette. Will your shady landlord hike the rent in your tiny one bedroom over San Francisco’s median $2,418 or New York’s $2,079? Is today the day you get evicted from your windowless, rent-controlled basement apartment? Who knows! Every day is like your own real-life Hunger Games when property investors and a tight rental market control your future.
GieFaan Kim, associate broker at Triplemint in New York, doesn’t totally buy findings like the study above. “I haven't met a working millennial that does not want the American dream of homeownership,” Kim says. He has seen a downward swing in millennial first time buyers lately, but doesn’t think wishing for a life of renting is the driving factor. “Millennial buying is down slightly this year compared to the past,” he says. “From what I see, it's a mix of two main issues, though: budget and information. Pricing has been on an upswing for many years and many millennials often get outpriced from the homes they really want, deterring them from pulling the trigger.”
Digging further into the EliteDaily and Millennial Branding survey, the results seem to agree. Of the millennials who said they’d rather rent, six out of 10 said it wasn’t necessarily a desire to be a free-range millennial, roaming the countryside without a mortgage care in the world. It was simply because they thought they couldn’t afford it.
Buying is much cheaper than renting in many places like Philadelphia, New Orleans, and Detroit. And over time, it is still somewhat cheaper in notoriously terrible markets like San Jose, San Francisco, and New York City, according to Trulia. So why do so many people think transitioning to homeownership isn’t possible? “The main thing to note is that millennials are extremely savvy when it comes to research and information,” Kim says. “In a strong market, it's easy to make the decision to buy so long as the deal is fair. When the market turns and millennials read about uncertainty, it becomes easy for the flow of information to outweigh experience.”
Potential buyers today read about looming interest rate hikes, fluctuations in the real estate market, and a seemingly endless number of surveys on housing trends and up-and-coming neighborhoods. In small doses, that knowledge is powerful, but information overload can lead to some serious millennial burnout—it’s like trying to find something to order on Uber Eats times a million.
The avocado toast guy
You’ve probably heard by now, but millennials are very bad with money. Unlike their richer Gen-X counterparts and wise boomer parents, millennials don’t do crazy things like “try to save money” or “respect the value of a dollar” that allegedly got older generations into their first homes. Instead, they spend frivolously on extravagant vacations, Rent the Runway subscriptions, and, of course, avocado toast.
Just listen to the advice of Australian millionaire Tim Gurner: "When I was trying to buy my first home I wasn't buying smashed avocados for 19 bucks and four coffees at $4 each."
Sure, real estate markets are tight all over the country (in February there were 3 percent fewer homes on the market and prices had increased 7 percent in a year, according to Zillow). And we know you have to compete with a pool of wealthier boomers, who represented 30 percent of the buyer pool in 2017, according to NAR, but come on. Quit it with the brunch already.
The truth is, millennial buyers are facing struggles previous generations didn’t. Student loans have skyrocketed. In 2016, college graduates tossed their caps and picked up an average of $37,172 in student loan debt, up 6 percent from the previous year, according to Student Loan Hero. Many older millennials also faced career setbacks as they waited to find jobs after the recession, and then there’s that pesky rent thing. Turns out you still have to fork over $2,418 every month, even if you don’t want to be a renter anymore. That all adds up to way more avocados than even the most die-hard Instagram foodie can shove into her mouth.
Millennials can’t save any money
A recent Apartment List survey found almost 70 percent of millennials had saved less than $1,000 toward a down payment on a home. Of older millennials, those 25- to 34-years-old, less than 30 percent thought they could save up 10 percent for a down payment within the next three years.
Darbi McGlone, a realtor with Jim Talbot Real Estate in Baton Rouge, Louisiana, thinks there is truth to that. Working almost exclusively with millennial buyers, she’s often waiting for clients to save up more funds—while they do crazy things like pay down their student loans or keep up with their rent.
But the overflow of information has hurt her buyers, too. On the one hand, millennials are so information-savvy, they almost make her job easier. “Some realtors have a hard time wrapping their minds around the fact that they only have to show millennials an average of three or four houses and they pick one. They have done all their own research online so by the time they go look, they have basically already picked the home,” she says. But on the other hand, despite having plenty of information on homes, many of McGlone’s buyers think they need a lot more money to get into a home than they actually do, and put off getting pre-approved for a mortgage for months or years from lack of understanding. But McGlone says there are options available—like low down payment programs through the FHA, lender credits, and even seller-paid closing costs—to help buyers who can’t hit the 20 percent down payment benchmark.
The good news is, if you can ignore the endless fretting about whether millennials will kill America’s precious suburbs in order to cram into communally owned urban lofts, you’re probably in better shape than you think. McGlone and Kim agree that millennials are coming at their housing decisions wisely, equipped with plenty of research. And when it comes to buying, they can be downright practical. “Most may be able to afford [a more expensive home], but I find they are comfortable with their free spending. Although they want a house, they don’t want that purchase to take away from their lifestyle, so they purchase less home in order to continue to have spending money,” McGlone says. Turns out, millennials do know what they’re doing!