Are Millennials Finally Ready to Start Buying Homes?
Millennials finally seem to be putting down more permanent roots. First-time buyers purchased 32% of all homes sold in May 2015, up from 27% a year earlier, according to the National Association of Realtors (NAR). May home sales were at their highest level since 2009 because of those newbie buyers entering the market. Overall, 65% of older millennials (those between the ages of 25 and 35) said they were interested in buying a home in the next three months, according the NAR data.
A stronger job market, cheaper mortgage insurance, and the return of low down payments are all helping turn one-time renters into homeowners, the NAR said.
“We’re seeing a bunch of young buyers right now,” Leann Starks, a real estate agent at Re/Max Preferred Group in Anderson Township, near Cincinnati, told the Cincinnati Enquirer. “They used to put off home ownership, but now we’re seeing a huge influx.”
The boost in activity among first-time buyers falls squarely in line with predictions many made late last year about the direction of the housing market in 2015.
“This is the beginning of millennials now seriously getting into the home-buying market,” Jonathan Smoke, the NAR’s chief economist, said during a panel discussion in June at the National Association of Real Estate Editors conference.
Still, the current share of first-time buyers remains below historical levels. In the past, about 40% of all home purchases have been made by people who’ve never owned a home before.
Big financial obstacles, especially high student loan debt, are keeping some would-be millennial buyers from turning dreams of homeownership into reality. Roughly 42% of millennials surveyed by Study.com said that either the cost of college or the amount of student loans they had affected their decision to make major purchases like a house or a car. Another 30% said those factors affected where they chose to live.
Younger people are also more likely to report problems qualifying for a mortgage, says the NAR, and difficulty getting a loan is causing some eager would-be buyers to delay their home purchases by a year or more. Sixty-four percent of renters surveyed by the New York Fed earlier this year said they thought getting a mortgage would be somewhat or very difficult.
Tight inventory is another challenge. Forty-five percent of homes sold in May were on the market for less than a month, says the NAR. That, in turn, is contributing to higher prices, which are up 7.9% from May 2014. Part of the problem may be that not enough new homes are being built. While housing starts were up in May 2015 compared to a year earlier, new construction is still nowhere near pre-housing-crisis levels, the Wall Street Journal reported.
Finally, a looming rise in interest rates is likely to hit younger buyers particularly hard. A third of millennials wouldn’t be able to afford a home if interest rates hit 6%, an analysis by HouseCanary, a real estate forecasting website, found.
“More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise,” Lawrence Yun, chief economist with the NAR, said in a statement.
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