Did you know “a 2019 study by Apartment List found that nearly 90% of millennials want to own a home”? But, according to a recent study by Freddie Mac, “today’s millennials are mostly renters, (with) their homeownership rate (at only) 43%.” Well I wanted to know why, if 90% of millennials actually want to own a home, why are only 43% successful? So, I decided to get some answers. I picked up some Jersey Mike’s for lunch, sat down with Freddie Mac’s Millenials and Housing guide and I can’t wait to show you what I found!
Road Block Number One: Home Prices and Affordability
Well, this might surprise you. Did you know, according to Freddie Mac, “more qualified millennials… (are) earning higher incomes than the generation before them”? Yeah, millennials actually have a higher income than all other previous generations and yet one of the biggest problems they’re facing is affordability. Freddie Mac describes how, “the cost barrier to enter the housing market is higher for millennials today than it was for prior generations.” They don’t leave us in the dark as to why though. Freddie Mac explains that “Home prices have grown 4X faster than household income”. Even with income increasing there’s too much of a gap between income and home prices.
Road Block Number Two: Low Inventory
63% of Millennials report that the most challenging aspect of buying a home is simply finding one. Many Millennials are only able to afford older homes. The problem that comes with that, according to Freddie Mac, is “buying an older home comes with the added cost of renovation.” Freddie Mac is trying to help out here. They created their CHOICE Renovation® mortgage to assist with this. They explain that this program allows borrowers to “finance their home purchase and renovation costs in a single-closing transaction.” Unfortunately, the shortage of housing inventory also leads to high costs in urban areas, forcing Millennials to buy in the suburbs – but that ends up driving up commuting costs. Sam Khater, Vice President and Chief Economist of Freddie Mac sums it up in a nutshell. He says, “the supply of unsold homes is at the lowest level in four decades.”
Road Block Number Three: Millennials Are Struggling With Misinformation About The Housing Market
Daniel De Vise recently wrote an article for The Hill entitled “Survey finds Americans wildly misinformed on housing market”. He describes how “Twenty-eight million Americans plan to purchase a home in 2023” And on average, “they hope to spend $269,200.” The problem with that? According to Federal Reserve statistics “Home prices crossed the $269,000 threshold sometime in 2013.” The current median sales price, according to RedFin was “$388,100 in December”. Why might buyers be so wildly optimistic about home prices? Well, because “Two-thirds of Americans surveyed said they expect an imminent crash.” That’s not what real estate economists are seeing though. On the one hand, you have economists at places like Red Fin predicting a “4 percent drop” in 2023 and then you have this huge amount of homebuyers expecting a 31% crash In order to purchase a home for $269,000.
That isn’t the only misinformation we’re seeing though. De Vise comments that “61 percent of Americans told pollsters current mortgage rates are unprecedented, meaning that they have never been seen before.” The sad reality is that “Homebuyers have basked in a climate of historically low rates for more than a decade.” The truth of the matter is that over 30 of the past 50 years have had interest rates higher than 6%. There’s a lot of misinformation out there and that’s become a real roadblock.
Road Block Number Four: A Lack of Financial Literacy
Freddie Mac describes that “Despite having more college and graduate degrees than any of the older generations, only 16% of Millennials are considered financially literate.” That is according to a 2018 study by the TIAA Institute. They comment that “recent research has shown that many adults have a poor understanding of basic personal finance concepts.” Keep in mind this study was based on evaluating graduate students! Another compelling statistic completed by Freddie Mac showed that “only 19% of millennials that assess their own financial knowledge as “high” or “very high” (actually) qualified as financially literate.” So, why is this? Well Freddie Mac explains it this way. They said, “the millennial generation’s educational success and record of higher average earning compared to previous generations at their age are impressive.” But, they continued, “the learning curve tied to successfully purchasing an affordable home is steep and typically not included in high school and college curricula.”
Road Block Number Five: An Inadequate Understanding Of The Home Buying Process
A recent survey from Freddie Mac concluded that “Most millennials ages 24-29 are not confident in their knowledge…of the homebuying process”. They identified saving for a down payment as one of the biggest challenges to buying a home but “nearly 42% of millennials… were under the assumption that they are required to put a 20% down payment on a home”. Many were unaware of government loan programs like FHA that require a 3.5% down payment or USDA and VA loans that don’t require a down payment at all. The Freddie Mac study listed numerous ways to overcome the down payment hurdle. They describe how “there are other ways to raise down payment cash aside from savings, including nonprofits or agency assistance and gifts.” They explained that “when it comes to housing assistance, there are over 2,500 nationwide programs that provide grants and loans to make homeownership more attainable.” They have an entire web page on down payment assistance programs and all the different places and sources you can look.
So, affordability and a lack of inventory are massive issues for millennials but there’s also just a ton of misinformation and missing information out there! If you find yourself in that position, check out the several links and a buyer’s guide explaining the home buying process below. Now, if you want to be on the look out for the three biggest homebuying lies in the Dallas market today then this video is where you want to head next.
Download our First Time Home Buyer's Guide
Additional publications from our preferred lender:
10 Tips for Buying Your First Home
What Is Downpayment Assistance?