Millennials Want to Buy Into the Housing Market… But Can They?
It’s official. We are in a housing recovery and ‘Generation Y’ wants to be part of it.
Recently the S&P Case-Shiller index reported that the US economy has experienced 12 solid months of year over year home price increases. New homes are even worth 29% more than they were at this time last year. This news is reassuring, and Millennials, a large portion of first time homebuyers, think so too. In fact, a recent survey by PulteGroup found that 65% renters between the ages of 18-34 want to buy a home in the near future, up 13% from the previous year.
If you are not familiar with Millennials, they are the segment of the population between the ages of 18-34. Millennials, sometimes called “Generation Y,” grew up in the late 80’s and 90s, are currently either in college or have gotten out of college within the past 12 years, and have experienced a lagging job market just like the rest of the economy. What they have not experienced first hand (for the most part) is disrupted or eliminated pension funds, underwater mortgages, deep losses in the stock market, or other economic hardships that befell their parents and grandparents. This puts them in a stable position to begin investing, and real estate looks like a great bet right now.
Buying a House a Better Investment than Buying Stocks?
As Millennials grow and begin to save, they are looking for a place to invest their money. According to the National Association of Realtors (NAR), 78% of first time homebuyers believe buying into the housing market is a good investment and 46% of this same group thinks buying a house is a better investment than buying stocks.
So if 46% of homebuyers believe buying a house is a better investment than buying stocks, why don’t we see more first time homebuyers? The NAR reports only 39% of homebuyers were buying for the first time 2012. Even though ‘Generation Y’ wants to buy into the housing market, they face significant obstacles to do so.
Millennials Face Hurdles to Home Ownership
Tightened credit standards and low inventory have created difficulties for first-time homebuyers. If a first time homebuyer is lucky enough to qualify for a mortgage, many do not have the resources to put 20% down. Instead, first time homebuyers often take advantage of programs such as the 3% down FHA loan, or the 0% down VA loan. Unfortunately, FHA loans take several weeks to fund and many fall through, causing home sellers to prefer cash and investor offers over FHA loans. This makes buying a home that much more difficult for Millennials.
While the NAR reports investment sales nationally are hovering around 30%, first time homebuyers in many areas are feeling like they just can’t get traction in the market. In areas that were hit the hardest by foreclosure, such as Southern California, Miami, Phoenix, Washington D.C. and San Francisco, Millennials are seeing themselves outbid by cash and investor offers.
Inventory is Scarce and Going Fast
In hot markets, inventory is hard to come by and it is common for homes to show for just a few hours, then receive as many as 10 offers in just one or two days. National inventory levels, as reported by RedFin, were 33% lower in 2012 than in 2011. In some California cities, including Los Angeles, inventory levels have dropped 61% from last year. This information backs up what buyers have been experiencing in these “hot” markets: homes going into escrow just days after their first showing.
When the buying frenzy cools down in these ‘hot’ markets and more homes become available, will Millennials get the chance to buy into the housing market? Time will tell.
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- NNA clears up questions about the new Signing Professionals Workgroup standards January 10, 2014
- What to Expect from Housing This Year January 7, 2014
- What’s Next for the Housing Market? January 3, 2014
- CFPB Starts to Flex Its Muscles December 31, 2013