14 Mar Millennial Focus
How Millennials Are Changing the Home Buying Process
Millennials are approaching homebuying differently than previous generations, disrupting a process that has largely followed a consistent trend of search, compromise and settle in. From big picture needs to design must-haves and kitchen appliances, the generation is proving to know exactly what they want as they forge their own path to homeownership.
Coming of age at the height of the Great Recession, millennials have shown great trepidation toward homeownership. Although segments of the generation have favored the versatility of renting as they established careers and enjoyed the freedom of young adulthood, the delay into home ownership for most is a matter of circumstance. Graduating with student loan debt and stepping into a failing job market, saving for a down payment on a home was not a realistic goal for most.
As the economy improved, many millennials have established careers and built savings. As they age, climb the corporate ladder, get married and start families, their lifestyles are no longer conducive to cramped apartment living. As the housing market improves, rent costs continue to rise, making a fixed monthly mortgage look attractive to those settling down.
Due to these factors and timing of major life milestones, millennials have quietly become the largest segment of homebuyers in the U.S. In 2017, homeownership rates rose for the first time since 2004 likely attributed to this influential generation’s new penchant to purchase. Of all first-time home buyers, Millennials make up 66%, and they account for 34% of home buyers overall.
As they finally look for a home to call their own, this generation is strategic, specific and unwavering in their needs and wants:
Location. Location. Location. Millennials are increasingly moving to suburban communities within reach of metropolitan areas. In California, Elk Grove tops the list for millennial homeowners due to the relative affordability and proximity to jobs in Sacramento and San Francisco. The median home price in Elk Grove is just $350,000, compared to well over $900,000 in San Francisco.
Locally, we’re seeing areas of the Inland Empire, specifically, Riverside County, become increasingly popular. According to a study from RLCLO, Riverside, along with Orlando and San Antonio saw the greatest number of millennials purchasing homes in recent years. In Orange County, we’ve seen tremendous suburban growth and development in areas just outside major commerce and business areas with neighborhoods like Baker Ranch and Serrano Summit.
For a more in-depth look at how and why suburbs are appealing to Millennials, check out the first post in our Millennial Focus series here: How new suburban builds are attracting America’s largest group of home buyers.
Skipping the starter home. As millennials find themselves established in their careers and starting families of their own, they are jumping straight to well-appointed, single-family homes. These residences naturally come at a higher price point, but with a decade of work behind them, two incomes, and time to save for a down payment, millennials are able to purchase a larger more luxurious first home. One thing to note is that California may be falling behind this national trend as the housing crisis continues to dictate the market and purchasing power for many.
Millennials want it all, and they want it now. Millennials are looking for updated, move-in-ready homes. They often lead busy lives and have put a substantial amount of their savings toward a down payment, leaving little time and money for renovations and improvements. With just 11% of millennials looking for a permanent residence, they view their current purchase as a life-stepping stone and investment they can profit from in the years to come. Millennials are also thinking toward retirement, possibly looking to contribute more to their 401(K) rather than dumping funds into renovations.
In addition to space for the family dog and bedrooms to grow into, millennials aren’t willing to compromise on style. Millennials are wooed by Instagram-worthy kitchens and bathrooms along with design elements that stand out and will impress. They are also in search of open-concept design, green features, and smart home technology. Millennials value convenience and quality of life, care about the environment and grew up with technology. One in four millennials already have a smart home device installed, and we expect to see more smart features included in new builds in the coming years.
There’s an app for that. The generation to create an app for nearly everything utilizes platforms like Zillow and Realtor.com to monitor neighborhoods they are interested in. This technology allows buyers to view photos, videos, maps and neighborhood profiles. Millennials are choosing the homes they want to tour and only visiting homes they are ready to purchase. They are familiar with the homes features and layout, allowing them to spend more time taking in the surrounding area and evaluating things like noise levels and natural light.
Contrary to the digital culture millennials embrace, research shows they are still utilizing real estate agents to guide them through the process, but it is to help with paperwork and legal issues rather than finding a home.
As more and more millennials land in the sweet spot of lifestyle needs and purchasing power, we expect the real estate industry to continue to evolve. This ongoing series will continue to unpack trends and analyze how the local real estate market is impacted by country’s largest generation.