Millennial Homebuyers Emerge as Rents Increase
Millennials have it rougher than any other generation. Not only are they called spoiled and entitlement, buying a home has been an uphill battle for this generation—which includes those born between the early 1980s and the late 1990s.
Due to rising home values, tighter mortgage rules and student loan debt, many millennial's discovered it was difficult to qualify for a home loan. But as the real estate market shifted in favor of buyers in many cities, millennial homebuyers have emerged stronger than ever.
A survey from the National Association of Realtors (NAR) found that millennials bought the largest share of properties in 2014. Since this generation is one of the biggest—even bigger than baby boomers—this group may soon make up one of the biggest generations of homeowners. And according to Diane Cummins, immediate past president of the Hudson Gateway Association of Realtors in the northern suburbs of New York City, “real estate brokers can't afford to miss out on these young, new homebuyers.”
How to Connect With Millennial Homebuyers
Tapping into this group involves an understanding of how they approach real estate. Millennials rely heavily on technology. They're constantly connected to the Internet and their smart phones, and before making a purchase or decision they use technology to conduct thorough research. This tech-savvy generation knows what they’re looking for before meeting with a realtor. Many are familiar with various mortgage products, and some already know where they want to live—they just need a realtor to make it happen.
“They are totally technology driven,” says Cummins. “They do their own research, but they rely on agents than any other buyers.”
The question remains, what has prompted an increase of millennial homebuyers?
Millennials Ditching Rent for Mortgages
Even though millennials have had it tough financially in recent years, rising rent is a key factor in the increase of millennial homebuyers. While some members of this generation prefer the convenience and freedom of renting, rental rates in some cities have increased dramatically. And unfortunately, some millennials had found themselves priced out of their rental markets. This reality combined with low interest rates and low down payment mortgage options make homeownership an attractive alternative.
Affordable mortgage rates often allow millennials to purchase a home with comparable (or more) square footage for less than what they paid renting. And with the availability of mortgage programs requiring less than 20% down, coming up with cash for a home purchase is much easier. An FHA home loan only requires 3.5% down whereas a conventional home loan have down payments as low as 3% to 5%. There's also the option of receiving gift funds toward their down payment and closing costs. According to the NAR survey, 25% of millennial homebuyers in 2014 used gifted funds to help with their first purchase.
Millennials are tech-savvy and know what they want, but they need a real estate agent’s guidance to complete a purchase. These buyers are emerging, so it’s important for brokers to understand their unique needs.