Generally seen as renters, millennials are now making their way to real estate.
Call them millennials or the ‘forgiven children’, statistics and reports are suggesting that this generation has finally started making its entry into the housing market. Now in their late 20s and early 30s, singles and young couples are focusing on buying real estate and are moving away from the significantly expensive and ever escalating rents.
Mortgage rates are now in the high-3% range, while the government has been actively involved in easing the credit requirements that encourage more borrowing, specifically among the millennial class. With the growing frustrations of the young at increasing rents that create no equity, we may just witness a major shift from renting to buying in real estate (Harney, 2015).
Getting Tired of Rent
As the median home prices have been increasing since the housing market rebounded after the crash of 2007, sellers and landlords in the real estate have been leveraging on profits. On the other side of the spectrum, renters have had to pay increasing rents, face disputes during evacuation, and add-on charges that only make it more difficult for someone who is working through college or who has just started working.
The fact is that the millennial demographic is massive, and has been missing in action since the end of the Great Recession. Hence, where they should have represented about 40% of the total purchases in the housing market, of which economists predict that a majority would have been first time buyers; they have lagged behind by only making up about 10% of the market share (Harney, 2015).
However, given the current onset of the housing market, the conditions are finally favorable for millennials to buy property in California, and other parts of the U.S. for that matter.
Favorable Market Conditions
The average rent for an apartment across the state is $1,848, an all time high and with a 6.9% increase from last year alone. Redfin claims that first time home buyers now account for 57% of home tours performed by its agents, which is the highest rate in recent years. Nela Richardson, the Chief Economist at Redfin, states that “They (millennials) are finally sticking a toe in the water.”
Assuming that these impressions could eventually lead to a trend, there are many opportunities that now lie in the housing market and the increasing inventory across California. However, assuming that there is a trend here, then what is driving the decisions? Well, the high rents, declining interest rates, and the pent-up demand have all contributed to what is a ‘late but worth the wait’ shift in the housing market (Harney, 2015).
However, there are several other factors that could impact the millennials and their decision to invest in buying real estate. In the last couple of weeks, Fannie Mae and Freddie Mac along with Federal Housing Administration have introduced more consumer friendly regulations. The FHA intends to cut the high mortgage insurance premiums paid up front at some point in the future, while Fannie and Freddie have reduced the minimum down payment amount from 5% to only 3%. The bottom line is that we do not know if this surge in home buying by millennials will eventually become a trend. What we do know is that the signs are highly encouraging.
There are several options that you can choose to do next if you are currently a seller in the market. One option is to wait for the buyers that will fight for your property. Because there will be so many millennials looking for housing, you can expect a seller’s market, especially in areas where rent is particularly expensive. Millennials will then be able to justify homeownership as opposed to renting, as the price of renting is frightening to many students and entrance level workers (Badger, 2015).
Another option is to begin renting at a slightly lower price than your area dictates if renting is of interest to you. You will have millennials knocking at your door that were unable to be approved for a mortgage loan based on the rising interest rates. You will also have the millennials that are still insecure in their ability to own a home and pay the mortgage. Because your property is slightly less expensive than the competition, millennials will flock to you.
You could also sell your property now before the Federal Reserve raise interest rates in order to fight inflation. WIth interest rates soaring it will be much more difficult for young millennials to be approved for a mortgage loan; therefore, a seller should catch the millennials now while they can still afford to buy a home.
Want to know more? Go to www.thepowerisnow.com and join the buyer’s and seller’s club for free to get free support, consultation and information from me and my team. You have the power to change your life now because The Power Is Now.
Eric Lawrence Frazier MBA
President and CEO
Harney, K. (2015). Millennials are finally entering the housing market. Retrieved August 5, 2015.
Badger, E. (2015). Millennials are about to have a big impact on the housing market. But what will it look like? Retrieved August 5, 2015.