Millennials are an oft-discussed group in the real estate industry, since they are seen as the demographic with the largest potential to lead the charge on homeownership and shape homebuying practices and preferences for years to come.
But, as seen in the Home Buyer and Seller Generation Trends study by the National Association of Realtors, the rate of new homeownership is down, and researchers are trying to crack the nut on why millennials aren’t out in droves buying homes. Theories abound, such as an inability to meet high lending standards, a lack of knowledge about down payment resources, the financial pressures of paying back student loans or that millennials would rather move in with parents or become renters.
Some of these findings would lead people to believe that millennials don’t want to become homeowners. But NerdWallet, which released a report of its own on millennials, says that assumption is incorrect.
“There’s a strong indication that millennials do want to become homeowners, which is quite different from what we’ve heard,” says Chris Ling, mortgage manager at NerdWallet. “While overall homeownership has declined, millennials do see the long-term value in owning a home.”
The barrier of ‘real and perceived difficulties’
The company analyzed data from government institutions such as Fannie Mae and found that “millennials look upon owning a home just as favorably as previous generations.” But, millennials (those born between 1981 and 1997) tend to think that homeownership is simply out of reach because of “the real and perceived difficulties in affording it.”
NerdWallet says millennials are postponing homeownership to become financially fit. Moreover, 57 percent of millennials rent because of its affordability or because of the perceived (and real) difficulty of obtaining a mortgage.
Millennial renters say a bad or non-existent credit score, high down payment and closing costs, an inability to afford monthly payments and too much existing debt are the biggest obstacles to becoming homeowners.
But the study shows that the average millennial would have a median estimated monthly principal and interest payments of $925 per month. Furthermore, the average millennial would reach a monthly debt-to-income ratio of 25 percent, which is below the 28 percent that lenders look for when reviewing mortgage applications.
Also, 73 percent of millennials weren’t aware of lower down payments that range from 3 to 5 percent of the home’s price.
Advice to millennials: Never assume
Lastly, the study also breaks down the misconception that student loans are hindering millennials from becoming homeowners. NerdWallet quoted Zillow’s 2015 report that shows homeownership drops by only 2.1 percent when a married household with a bachelor’s degree has $30,000 of student loan debt.
NerdWallet concluded its findings with a list of resources and an encouraging message for millennials.
“Millennials — and first-time homebuyers in general — should never just assume they can’t afford a home. The first step to owning a home is knowing how you can finance it, so you should always research your options,” said Ling. “Buying a home may be more of a possibility than you realize.”
