Millennials represent the next generation of homebuyers. These are individuals who have come into their own since the year 2000 and are currently in the mid twenties to early thirties. Many of these young professionals are either looking for their first homes or looking to upgrade to something nicer.
Two things have prevented Millennials from widely considering luxury home ownership in the past: down payments and the availability of loans. But now, with the interest rate so low, young buyers feel motivated to buy before it goes back up. Add to that the fact that the overall housing inventory on the North Shore real estate market has declined, and young buyers are feeling the pressure to buy now before they lose their chance. Simultaneously, Millennials are starting to pay down their student debt, leaving them with better credit, and more disposable income. But, perhaps the most motivating factor of all is that rent prices have continued to rise, so suddenly the personal economics are shifting toward home ownership for this previously more nomadic group. It certainly doesn’t hurt that the unemployment rate in that demographic is down to 5.4%
Last year, Millennials made up nearly a third of the home-buying crowd–up from just slightly more than a quarter two years prior. But even though these young buyers are more motivated than they were a few years ago, they still have the aforementioned challenges to overcome; a reality which might temper their dominance in the market. While they might start planning for home ownership now, not all Millennials will have their down payments lined up in 2015. The shift toward millennial home ownership is a work in progress, one that will take some time to reach its peak.
Rent prices are going up because rental vacancies are the lowest they’ve been since these new buyers were in grade school–something they have surely noticed. Meanwhile, the lower interest rate means that new buyers might secure a lower mortgage payment than they currently pay in rent. If, however the interest rate increases significantly in the summer, as some analysts predict, Millennials will have to act quickly to get the best deals.
The biggest hurdle for Millennials is that pesky down payment. With rent costs increasing faster than income, renters are getting poorer, rather than contributing to their savings. In fact, average renters pay 8.7% more of their income toward housing than average homeowners. It can be very difficult for renters to overcome that gap.
Millennials are certainly motivated to pursue homeownership in 2015, and the conditions are ripe for them to make a wise purchase, but whether they will qualify for the necessary loans, and come up with the necessary down payments, remains to be seen.