The Housing Chronicles Blog: 2015: The Emergence of the Millennial Home Buyer?

Wednesday, May 27, 2015

2015: The Emergence of the Millennial Home Buyer?

A few months ago, I wrote about the partial absence of the first-time home buyer and what impact that is having on the housing market.  In order to delve into this subject in more detail, I will also be moderating a panel of experts for a session entitled “Where are the First-Time Home Buyers?” on Thursday afternoon, June 25th, at this year’s PCBC in San Diego.

Scheduled to join me on this panel are Tim Costello, who leads BDX, Builder Homesite and New Home Technologies, LLC; Mike Taylor, Division President for Pardee Homes Inland Empire, which is certainly courting this buyer; and Mike Surges, the National Strategic Alliance Manager for iMortgage, which now counts a number of builders among its clients.

Recently, however, the Web site Zillow made a bold prediction that Milliennial home buyers will outpace other demographic groups as soon as this year based on income, growth in home values and the level of entry-level homes for sale.  The best large cities based on this ranking include Atlanta, Las Vegas, Chicago, Hartford and Pittsburgh.

Zillow’s 2015 predictions are based on a series of factors, including housing data that shows rents continuing to rise sharply while home prices level off, more inventory, and Millennials finally starting to get married and have children after delaying those choices during the recession.

In a similar analysis, The Demand Institute – a think tank focusing on consumer demand co-sponsored by The Conference Board and Nielsen – predicts 21.6 million households headed by Millennials by 2018, for a gain of 8.3 million since 2013.

In the summer of 2013, the Institute surveyed more than 1,000 Millennial households to find out about their current living situation, intentions on moving and home preferences in order to better understand the future of housing and community demand.  Somewhat surprisingly, the results of this survey were often counter-intuitive to the common wisdom about this much-studied generation, which is likely to behave more like earlier generations than previously assumed.

Despite the gloomy reports about challenging financial situations, Millennials are actually quite optimistic about the future, with most having plans to move within the next five years.  When they do move, they’re looking to upgrade their housing situations, whether that’s a nicer, more spacious rental or purchasing a home for the first time.

As Millennials find these new places to live, for some the requirements of raising a family will be a key factor – just like those generations before them.  Although it is true that most Millennials are currently single, most respondents in this age group still plan to get married or have children within the next five years.

As would be expected, those seeking to start a stable family also desire an equally stable place to live, at least down the road:  while most Millennial movers will rent their next home, more than 8 in 10 already own or plan to own their own home someday.  The good news is that the most recent crash in home prices did not lead Millennials to believe that home ownership is a poor investment. In fact, this generation should be just as likely to own their homes compared with previous generations.

Like other generations before them, when they do rent or buy their next home, Millennials are mostly looking for more space.  Although multifamily demand should continue to be strong in the next few years due to continued demand, the single-family home still remains the top choice for this age cohort. In the meantime, for those not yet ready to purchase but in need of more space or family friendly alternatives, single-family rentals are an increasingly popular option.

As opposed to common perceptions of Millennials as mostly city dwellers, many will instead head to the suburbs in search of larger spaces more appropriate for growing families.   In addition, most Millennials surveyed said being a short drive – rather than walking distance – from grocery stores, restaurants and other services was perfectly acceptable.

If there is one wrinkle in their plans for homeownership, it’s how to finance such a purchase.  Although student loan debt does not spell disaster for home ownership for most Millennials, these households still have little saved for a down payment, and so many are concerned about qualifying for a mortgage. Consequently, they are asking for new approaches to home finance, such as lease-to-own plans in which the tenant builds equity over time, and is then given the option to purchase the home at market rates.

However they choose where to live, one thing is clear about the Milliennials:  marketing to them is a lot different than to Baby Boomers and other generations.  Those builders who can manage to capture them with lots of data, authenticity and an emotional appeal will be much further ahead in the game than those competitors who only rely on formulas which worked in the past.

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