Since the start of the pandemic, millennials have been eager to dip their toe into the housing market. This new generation has approached home buying differently than their predecessors — from relying on digital resources to buying sight unseen. They also have different preferences and needs, as well as apprehensions.
Millennials lived through the Great Recession and have also been plagued by student debt, making many distrustful of lenders. However, with interest rates so low and many young adults starting families, it seems more millennials are willing to take the plunge into homeownership.
This article will explore what purchasing a house actually looks like for millennials in today’s market, and how to avoid pitfalls that first-time buyers encounter.
A Highly Competitive Market
Millennials seem ready to finally purchase real estate, but they are up against a highly competitive housing market — the median list price of homes grew by 17.2% last year. Inventory shortages and historically low rates have made this one of the most challenging times in modern history to buy a house.
That being said, some millennials are willing to go above and beyond to land the house of their dreams. According to Real Estate Witch’s Millennial Home Buyer Report: 2022 Edition, one in six millennials would be willing to offer $100,000 or more above asking price for their dream home, and nearly half of millennials expect to max out their budgets.
The highly competitive market has caused some millennials to make hasty and uninformed investment decisions. More than 80% of millennial homeowners say they have at least one significant regret from their first home purchase, according to the report on millennial home buyers.
In the mad dash to close the deal, inexperienced buyers may forgo a home inspection, miscalculate potential return on investment, or fail to fully understand renovation costs — leading to disappointment in the long run. This is especially true for those who have purchased a fixer-upper. While millennials are more likely than other generations to buy a home that needs major repairs, one in four who gambled on a fixer-upper have buyer’s remorse, according to the report.
Others have rushed to buy a house while mortgage rates are still low. Freddie Mac has predicted the 30-year fixed mortgage rate will increase to 3.8% by the fourth quarter of 2022, up from an average of 2.7% in December 2020. But buying a house just because rates are low doesn’t take the full picture into account, like inflated housing prices and high construction costs.
For those looking to buy, doing a comparative market analysis can help paint a better picture of a property’s true value and whether the investment is really worth it.
More Money, More Debt
Millennials have delayed homeownership longer than previous generations, largely because of student and credit card debt. According to Real Estate Witch’s report, more than 9 out of 10 of millennials have some debt, and one in three owe more than $50,000. Debt is a huge barrier to homeownership because buyers are traditionally advised to pay down as much as possible before applying for a mortgage.
Millennials have gotten better at saving, though. More than four out of five now have more than $10,000 in savings — a 25% increase from last year. Even so, one-third plan to put down less than 20% on their homes due to high housing costs and inflation.
Millennials are a generation that’s been known to move around. First as job hoppers, and now as homeowners.
The Millennial Home Buyer Report revealed that nearly one-third plan to live in their homes for less than five years, against the advice of financial experts. This could be because millennials are more willing to change jobs and move for better opportunities.
A recent Gallup report on the millennial generation revealed more than one in five have changed jobs within the past year, and 60% said they are open to a different job opportunity. The same report also revealed that millennials are the least likely generation to say they feel proud of their community, with nearly half reporting that they feel the city or area where they live is not a perfect fit for them.
Millennials are searching for a sense of place and authentic connection. While the market is tough right now, demand is expected to continue rising until more inventory is available. In the meantime, first-time buyers should be weary of common pitfalls that homeowners run into, and make sure their finances are in order before pulling the trigger.