Young people are called “millennials”, “Generation Y”, “boomerang kids” – all of which refer to Americans aged 18 to 35. Life has been a lot easier for me since I grew up in the Generation X era. We only had one label, similar to baby boomers. I still don’t understand why this group has so many different labels.
But I do know that first-time home buying is at its lowest point ever, and millennials are right in the middle of that period. The refinancing deals that fueled the mortgage market for the past three years have evaporated. A jump in interest rates by 1% since May completely turned off the tap. Purchase deals are expected to fill the void in 2014.
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What keeps millennials from buying a home?
The housing market and the economy need millennials to buy houses. How will it happen? What is really holding you back from diving into real estate?
Debt on consumer loans
- student loans: Student loan debt in this country is over $1 trillion, the highest ever, and showing no signs of easing. The facts are that college is worth a lot more money now than it was for my group of Gen Xers.
- Car payments: This is the new norm – payment for the car. $300, $400, $500 a month on just about every credit report we look at. What happened to buying a used Junker? It just doesn’t look cool!
- Smartphones: Gen Xers didn’t even need a pager and they didn’t have WIFI to pay for survival. Currently, you need to have the latest phone.
- Credit cards: Instant gratification is the essence of the game. Have you ever caught yourself buying what you want now and worrying about it later?
Not sure about homeownership
- “I don’t have money for a down payment”A: Financial discipline is usually a learned behavior. The monkey sees the monkey does. Millennials have seen their parents survive the last recession and live paycheck to paycheck. So learning how to save money for the future can seem like a pipe dream when you need to solve problems now.
- “I Can’t Apply for a Mortgage”: Most find it too difficult to get a mortgage after seeing how their relatives have been trying to refinance or buy a new house in the last 7 years. An accurate comb drawn on your finances is just not very attractive.
- “I’m not a handyman”: When I was growing up, the old man had to “fix” everything he could or tried to do before a specialist was called to help. The cost of all the things that need to be fixed and maintained in the home, whether you do it yourself or hire someone, can seem overwhelming.
- “A home is not a smart investment”: This makes sense, as the media attention to the housing crisis has been unprecedented. Social media, TV, etc. make it almost impossible to have a good home buying experience. If so many of your friends or relatives have gone through hard times with home ownership, why would you jump in that boat?
start a family later
- 40 is the new 30: I know several of my friends who have children in their 40s. Some have their first child at age 40.
- Free to rent: Free room and board at your parents’ house is hard to beat if you’re trying to pay off debt or save up for a down payment. This is often taken for granted. Many are not ready to take responsibility, so the stay is extended for years, not months.
- recession: Watching your parents deal with negative equity in their home and manipulate finances to make ends meet doesn’t help this group rush to start a family.
- Nomad lifestyle: Millennials are not afraid to move, take and move to different areas. Family dynamics have changed, and phone calls and smartphones make it easier to be away from our loved ones for longer periods of time.
Homebuyers for the first time amounted to approx. 30-35% of transactions in the last 3-4 years, when before the collapse of housing they accounted for 40% of home purchases. Perhaps we need more time to illustrate economic stability, wage increases, or important personal events so that millennial participation rates increase in the home buying market as needed.
I’m thinking about buying a house – where do I start?
Most likely, many of the points we mentioned above apply to you in one way or another. This is anything that can get in the way of your ultimate goal of becoming a homeowner. It’s hard to be convinced that you’re often making the biggest financial purchase you’ve ever made.
The best thing you can do for yourself is to start the home buying process early. Talk to a local mortgage specialist about your goals. They will help you figure out your qualifications as a borrower. They will be able to help you determine exactly what type of home you can afford. All you need is to have the conviction that this is what you want. Then start planning and saving ahead of time.
Kirk Chivas is the co-owner of First Commerce Financial, LLC, a mortgage brokerage company based in Wixom, Michigan. With over 17 years of experience, Kirk is committed to providing accurate and honest mortgage advice to Michigan residents.
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