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Millennials Going Over Budget to Buy Homes in Today’s Hot Market
Millennials poured $514 billion into the U.S. housing market over the past year as the largest generation of home buyers, said Zillow Inc., Seattle. But new survey data show their homeownership aspirations are stymied by affordability issues, frustration with the buying and selling process and a “cutthroat” housing market.
The Zillow Group Report on Consumer Housing Trends 2017 said more than half of young buyers (53 percent) make multiple offers to buy their first home; only two in five millennials (39 percent) are able to make the recommended 20 percent or more down payment.
The report said more than half of millennials (62 percent) shop for a rental while they’re looking to buy a home, indicating they accept the fact that buying a home is not a sure thing. They are more likely to say they struggled to find a home in their price range and on their time frame, and over one-third (37 percent) of millennial buyers say they went over their budget, compared to 29 percent of all buyers.
Coming up with a down payment is one of the biggest hurdles young buyers face, Zillow said. Less than half (39 percent) of millennials put down the recommended 20 percent or more on their home purchase, while one in four (21 percent) put down the bare minimum–5 percent or less–to secure a home loan. One in three (29 percent) millennial buyers now gets financial help from friends or family to make a down payment, and one in three (31 percent) millennial buyers cobbles together a down payment from multiple sources.
“In many cities across the U.S., the housing market is extremely competitive, especially for first-time buyers who are looking to purchase a starter home,” said Zillow Chief Economist Svenja Gudell. “Young buyers often start their careers in fast-growing cities in which the market is particularly tough–and they’re trying to save for a down payment while making record-high rent payments.”
Gudell said whether searching for a rental as a Plan B, looking outside their preferred neighborhood or cobbling together a down payment from multiple sources, “these buyers are willing to try every trick in the book in order to find a place to call home.”
Part of the issue, the report said, is renters can’t afford to stay–and they can’t afford to move. “Homeownership is simply out of reach for many Americans, including many families,” the report said. “In today’s hot housing market, more Americans are renting than at any time in recent history. Forty percent of families with children at home are renters.”
The report said renters typically face higher monthly payments than homeowners; 79 percent of renters who moved in the last year said their rent increased before they moved. More than half–57 percent of renters who moved in the last year–said a rent increase is the reason they moved. And to find their new affordable rental, 25 percent of renters had to look beyond the area they initially considered moving. More than a third (37 percent) of renters who have not moved in the past year say they can’t afford to move elsewhere. Nearly half (48 percent) of renters who make less than $25,000 a year say they can’t afford to move.
Zillow said Gen Z–those born between 1995 and 2010–already makes up more than 21 percent of the U.S. population, and is the most ethnically and racially diverse generation in U.S. history. They are beginning to enter the housing market as renters. The report said Gen Z is just as likely as those in older generations to say owning a home is a key component of the American Dream; 57 percent say they considered buying a home when they looked for their last rental.
Jeremy Wacksman, Zillow Group chief marketing officer, said Generation Z renters work hard to win a home and end up submitting more rental applications than any other generation (3.1 applications compared to 2.5 for all renters), yet they also move quickly through the process, spending the least amount of time searching (less than one month, compared to 26 percent of all renters).
“It’s encouraging to see that Generation Z is inheriting the same notion of what home means as their parents and Millennial siblings,” Wacksman said. “These tech-savvy, yet risk-adverse renters are bringing their social personalities home, desiring communal amenities geared toward bringing people together. They prefer living with others to living alone, and they put their vast social networks to work during every step of the rental search process. As they mature and look toward homeownership, it will be interesting to see how their aspirations and preferences will shape the housing market.”
The survey asked more than 13,000 U.S. residents aged 18 to 75 about their homes–how they search for them, pay for them, maintain and improve them, and what frustrations and aspirations color their decisions. The report is available at www.zillow.com/report.