Statistics vary on how many millennials own homes, but there is general agreement that even the highest estimate of 34 percent is lower than the number of under-35 homeowners in the past. There are a host of possible explanations for the decline, including student debt, the housing crash and low wages, and CNBC real estate correspondent Diana Olick has insights for those considering homeownership.
Pros and cons
Olick says the decision to rent or buy is pretty straightforward, but should factor in more than just whether or not a mortgage is cheaper than rent. For example, she says you should factor in how long you plan to live in a purchased home and whether you can recoup your down payment and closing costs during that period. “In most cases, owning will be cheaper than renting if you live in the home at least five years.”
She adds a word of caution, though, because while home ownership can be a good investment, the last housing boom proved that home values don’t always go up in the short term.
To move or not to move
Many millennials have moved multiple times, and a recent Mayflower survey found that “two in five millennials have moved to a new city without the intention of staying permanently.”
Before moving, Olick says it’s important to look at many different factors, including the local economy, employment opportunities, construction trends, home inventory and companies moving to or from the area, because all of these factors affect home values in the long term.
While Western cities like San Francisco have the highest home prices thanks to job and wage growth, those prices are causing “many workers and some companies to move offices to other cities like Seattle, Portland and Denver.” In turn, Olick says, those markets are also seeing “big home price growth because of their growing economies and the ensuing demand for housing.”
Barriers to homeownership
If you don’t have tens of thousands of dollars saved up, you aren’t alone. Olick says the most common issues preventing people from buying a home are down payment and credit. “The mortgage market today is nothing like what it was during the heady days of the housing boom, when everyone and their dog could get a mortgage. Today, lenders require strict underwriting, full financial documentation and a down payment.”
Weak credit is another problem, she says, because “lenders today are looking for the most credit-worthy borrowers and average credit scores on most home loans are still near historic highs.”
Young home buyers
According to Olick, the recession hit millennials particularly hard, because they faced high unemployment rates just as they entered the work force and also had to deal with high student debt and high rent. Today, she says, “Homeownership is growing among millennials, but very slowly due to credit barriers and a lack of starter homes available for sale.”
She also says that while most millennials do eventually want to become home owners, “they definitely don’t see the financial stigma attached to renting that previous young generations did.”
Available resources
For those who would like to buy sooner than later, there are many tools to help them get there. Whether it’s real estate companies, mortgage lenders or web sites like Zillow or Trulia providing data, Olick says prospective home buyers should take advantage of what’s out there. “Search for home values, comparables, inventory, mortgage rates, types of mortgage products, negotiation tips, title information, insurance and home care.”
Jill Coody Smits, [email protected]