Owning a home has always been part of the American dream. The desire to purchase a home has been exacerbated by COVID-19 and has caused people to leave the city in favor of the suburbs for many reasons.
The quest for more space, and even a home office, quickly rose to the top of buyers’ wish lists. Couple that with incredibly low interest rates, and it makes sense why we saw home ownership rise. With that said, are millennials buying homes? Or are they prioritizing different life goals?
Are Millennials Buying Homes?
Despite what real estate analysts predicted years ago, millennials are in fact purchasing homes! It certainly took the millennial generation a few more years than prior generations to start the home buying experience, but they have started buying homes and there’s no end in sight.
But why are more millennials buying homes today than ever before? The current trend of remote work, the job market, and the housing market are all positioned in a way that precipitated this rise in millennials purchasing houses.
COVID-19 brought nothing but change to the world as we once knew it. COVID changed the way we travel, buy groceries, visit family, interact with friends, and how we work. In particular, companies were forced to adjust to remote workforces.
From there, remote workers adjusted to a life of working from home while others were dealt unlucky hands as unemployment numbers skyrocketed. Employees were able to demonstrate to employers that they can be productive while working remotely, and the idea that everyone needs to be in the office to stay connected was shown to be false.
Millennials are typically defined as those born between 1981 and 1996. As such, this generation is no stranger to laptops, tablets, or smartphones. Google Hangouts, Slack, and Skype are apps and services that millennials use daily, but it became the norm for every generation over the course of the pandemic.
With more and more millennials working from their homes, they quickly realized they no longer needed to pay an exorbitant amount of money to live in the city or near the office. They realized that they can purchase a house in the suburbs without having to give up their jobs.
When millennials started the home hunting process, they were met with extremely attractive interest rates due to the state of the lending market. These low interest rates added fuel to an already active fire, causing more and more people to consider purchasing a home.
Common Problems Millennials Face When Buying A Home
Despite the numerous tailwinds, millennials undoubtedly faced some headwinds when it came to purchasing a home. Common problems millennials face when buying a home include:
- Millennials have a lot of student debt. Being the generation with the highest enrollment in postsecondary education than ever before came with a high price. In fact, according to EducationData.org, the average student borrower has more than $30,000 in student debt! This will certainly have a negative impact on graduates’ debt-to-income ratios, and as a result, it may make financing a lot more difficult.
- Student debt isn’t the only type of debt that millennials face. Credit card debt is also at an all-time high. Many millennials carry a high credit card balance, which further increases their overall debt profile.
- Given the high amount of debt that millennials face, saving money has become far more difficult. Even though the banks are lending money at incredibly low interest rates, the vast majority of loans still require a minimum 3.5% down payment. If you don’t have enough money saved for at least a 3.5% down payment, banks will likely not issue any form of financing. This also makes it difficult to compete with other buyers at the offering stage who are able to make a larger down payment.
Rent vs Buy: Which One Is Better?
There are plenty of financial providers and analysts debating whether home ownership truly is better than renting. Let’s examine some of the advantages and disadvantages of both options!
Advantages of Owning a Home:
- You have the freedom to do what you want to your home. If you want to add a bathroom, upgrade the kitchen, or change the paint color, there are no restrictions that prevent you from doing so.
- You are building equity with your home, and that equity can be borrowed against at a later time if needed.
- Your mortgage will eventually be paid off. Perhaps you chose a thirty-year mortgage, which is the most common option. In thirty years, you’ll get to live mortgage-free. On the other hand, if all you did was rent, you’d still have to make rent payments after thirty years have passed.
Disadvantages of Owning a Home
- If something breaks in your house, it needs to be fixed and that’s your responsibility. Home repairs can be expensive, so you will need to have cash set aside in case any major expenses arise.
- Home ownership also takes time. Unless you own a condo or you are part of an HOA that maintains the property, you will have to dedicate a concerted amount of time each week maintaining your home.
- You are committed to a certain living environment for the long run. If you want to move, it may take a while to sell your home, and you might not be able to sell your home for a profit, though that depends entirely on the market conditions.
Advantages to Renting
- You have more flexibility. You can move once the lease is up without thinking twice.
- If something breaks in the apartment, it’s likely not your responsibility to repair it. You do not need to keep cash in the bank for expenses like a leaky roof or a new hot water heater.
Disadvantages to Renting
- The rent payments never stop and may even increase over time. For as long as you are a tenant, you’ll be paying someone else who may be building their own equity or helping pay off their mortgage.
- You do not own anything. You cannot borrow against rent payments, and you aren’t building equity.
- Renting comes with restrictions. Some landlords do not allow their tenants to make changes in the apartment. For example, the carpet might be old but unless the landlord offers to replace it, you just have to live with it.
Above all, the most attractive reason to buy a house is the fact that real estate has proven to appreciate over time. When you buy a home, you always have the option to sell it at a later date down the line. Home owners should take comfort in the prospect that they may eventually have the opportunity to sell their home for a considerable profit. Especially amid a booming real estate market, owners can potentially generate a substantial profit by selling their homes!
When Does It Make Sense To Buy a House?
If you are looking to buy a house, you may be questioning yourself and wondering if now is now the right time. Unfortunately, there is no clear-cut way of deciding if now is the right time to sell. But there are a few important variables to consider.
- Will you have a three-month cash reserve in the bank after you pay your down payment?
- Is your credit score healthy?
- If your credit score is on the lower end, are you willing to take action to improve your score?
- Can you foresee yourself living in the same home for the foreseeable future?
Contrary to Popular Belief
Millennials buying homes? Who would have thought! Despite what generation X thought, millennials are buying homes at a rapid rate.
Millennials are working out of their homes, can communicate with their colleagues via Slack, and answer emails from their smartphones at all hours of the day.
Working from home is becoming the norm, which is inspiring a lot of millennials to buy a home and settle into a more permanent residence. As such, there’s been a movement of millennials leaving the urban areas in search of the suburbs for more space and large home offices.
Instead of paying someone else’s mortgage by renting, millennials are taking advantage of these low interest rates and purchasing their own home. And it’s for good reason, too.
This page last updated: May 10, 2022