For Millennial Home Buyers, a Need for Trade-Offs

As the Millennial generation wades into the housing market, they’re being forced to make hard choices either in what they find in a home–or the neighborhood it’s in.

For these 20-36 year-olds, said Alexandra Lee, data analyst with Trulia, San Francisco, “the American Dream of homeownership is alive and well this spring–but the housing market isn’t playing nice. Prices keep creeping higher, and inventory continues to dry up.”

As a result, Lee said in a report (https://www.trulia.com/blog/trends/spring-survey-millennials/), home seekers in the starter home category are bearing the brunt of the housing market “beatdown”–entry-level homes are becoming scarcer and pricier, but also smaller, older and of worse quality. The report said Millennials–the youngest and largest home buying generation–also face the most obstacles, and most often have to put their home buying plans on hold.

“Put between a rock and a hard place, these homebuyers are being forced to make compromises on their home purchase,” Lee said.

This is also borne out by a report from Zillow Inc., Seattle, which said nearly a quarter of U.S. Millennials are living at home with their parents, which translates to nearly 12 million young adults nationwide. Compared to 2005, just 13.5 percent lived with their parents.

“The combination of rapidly rising rents and slow income growth over the past half-decade drove many young adults to either move back in or never move out of their parents’ home, but the trend has been persistent even as the U.S. labor market has improved,” said Aaron Terrazas, Zillow senior economist.

The Zillow report noted among Millennials living with their parents, nearly 12 percent are unemployed; 28 percent of recent college grads live with their parents, up from 19 percent in 2005.

“As rents outpaced incomes over the past decade, young people turned to their families in large numbers to ease the housing cost crunch,” Terrazas said. “But even as the labor market has improved, the family safety net has yet to unwind. Living with parents may allow young adults to pursue work or a passion that may not be especially lucrative, or save enough money for first and last month’s rent or a down payment on a home of their own.”

Zillow reported more Millennials live with their parents in areas where housing costs consume a larger share of income. For example, in Miami, New York, Riverside, Calif. and Los Angeles, more than 30 percent of millennials live at home with their parents. These are also among the country’s pricier rental markets where rents typically consume upwards of 35 percent of the median income. Austin, Texas has the smallest share of millennials living at home with parents, at 14 percent. Renters in Austin can expect to put less than 30 percent of their income toward a rental payment.

The Trulia survey, conducted online by The Harris Poll of more than 2,000 Americans age 18 and older, offered the following findings:

–Nearly nine in 10, (86%), of Millennials plan to buy a home. Of these prospective homebuyers, 35% plan to purchase a home within the next year, and 57% plan to purchase in the next two years.

–However, the vast majority of millennials (87%) are encountering obstacles that are delaying their home buying plans at this time, more than any other age group (68% of Gen Xers, ages 37-53, and 47% of boomers, ages 54-73). The survey said 98% of millennials planning to buy in the next year say they’ve encountered obstacles that are keeping them from buying a home, most often due to rising home prices (40%), saving enough for a down payment (31%), and poor credit history (26%).

–Millennials are facing problems that older generations may not have had to deal with. Among millennials who ever had plans to buy a home, not having a stable job (17%) and student debt (15%) are two obstacles that have hindered their home buying decisions, and they are over twice as likely to have experienced these obstacles compared to Gen Xers (7% and 6%, respectively) and boomers (7% and 1%, respectively).

–Faced with these pressures, millennials are more likely than older generations to be willing to consider trade-offs in both the home and neighborhood during their home search; 84% say they’d be willing to give up one or more home features (compared with 78% of Gen Xers and 65% of boomers), and 89% say they’d be willing to give up one or more neighborhood features (compared with 81% of boomers).

“Millennials reflect the choices made by those with lower annual household income and those living in urban areas, and show that they are a generation still grappling with the effects of the recession while trying to enter the housing market,” Lee said. “As job growth continues to rise and millennials mature in their careers, we may see some of these financial impediments start to dissipate. However, an increase in starter home buyers means that this segment will become even more competitive. Millennials can hold out hope that the encouraging housing starts we saw in 2017 can lead to some relief in the starter home segment.”