The economic recovery has been good for many Americans, and one of the side effects is a surge in home buying among millennials. Millennials in their late 20s and early 30s in particular are leading the charge, with homeownership rates among these groups two to four times higher than other age groups between 2014 and 2016, according to a research report by Fannie Mae.
"There's been an influx of millennial home buyers this year, as older millennials have had some time to grow in their careers and pay off student loan debt," says Stuart Eisenberg, national director of real estate and construction practice for accounting firm BDO USA, LLC.
Younger millennials, meanwhile, more often rent as they begin their careers, but according to Eisenberg, the generational shift in home buying is just getting under way. "Expect more disruption in the next five years as millennial home buying accelerates."
As millennials enter the housing market in greater numbers, they're approaching it in a much different way than previous generations of home buyers. (See also: First-Time Home Buyer's Guide.)
Tech Features Heavily in Millennial Home Buyers' Decision Making
Millennials are dedicated to their devices, and for this group, technology plays a central role in home buying. According to a 2017 report from the National Association of Realtors (NAR), 99% of millennials search online to get information about homes and home buying. They were also around twice as likely to use their mobile device in their home buying search than older Baby Boomers, with 58% of millennials finding the home they want to buy via their smartphone or tablet. According to the NAR, that's directly affecting the way real estate agents and brokers approach their role in the buying process.
"Digital advances have transformed how real estate is done," says Kim Howard, real estate agent and co-founder of Howard Homes Chicago. "Twenty years ago, real estate agents were valued for information – now, the true value of a real estate agent is through their negotiation skills, relationships with other brokers and their ability to keep up with the times with marketing strategies and processes."
Millennials also differ from previous generations in terms of how they use tech to communicate with realtors. "They prefer the majority of communication to be via text message," says Jill Hussar, a broker-owner at Hussar Real Estate in Lakewood Ranch, Florida. Hussar says millennials utilize texts to express interest in a property, schedule appointments and ask questions, while phone calls are usually reserved for more urgent or pressing concerns. Texting represents the most immediate back-and-forth line of communication.
NAR research suggests that agents are adapting to this demand for electronic communication, with 90% of agents communicating via text and 94% using email. Another 36% chat with clients through instant messaging.
Another digital impact is being felt in how agents list homes. Hussar says that tech-savvy millennials are leading agents and brokers to introduce things like live stream and video in lieu of traditional photographs. "Videos give the audience a broader view of the property, communication and location," Hussar says, helping agents get in front of potential buyers, i.e. millennials. (For more, see: 4 Fintech Companies Disrupting Real Estate.)
Millennials Express Specific Preferences for Homes
Millennials want homes, but they don't just want any home. According to a blog post by online real estate company Zillow, 47% of millennial homeowners prefer the suburbs to the big city or to rural areas. And they're increasingly skipping the starter home and trading up to something bigger and more expensive. According to an article in Realtor Magazine, one-third of millennials who purchased homes in 2018 paid $300,000 or more, a steep step up from the $150,000 to $250,000 most buyers pay for a starter home.
The rental market has played a part in pushing more millennials toward the suburbs. According to "Rentonomics" data from Apartment List, through June 2018, rent prices increased month over month in 85 of the largest 100 cities in the U.S. Year over year, rent prices are up in 82 of the 100 largest cities in the country. (See also: Where Millennials Are Buying Homes.)
"All across the country, rent prices are generally increasing in urban areas," Eisenberg says. He points to the revitalization and redevelopment efforts that have given many cities a facelift. While that means more walkable urban centers with restaurants, nightlife and access to green areas, it has also resulted in premium pricing for in-demand housing. As a result, "many cost-conscious millennials are choosing to live in the outskirts of a city or in the suburbs."
At the same time, millennial incomes are increasing. While millennials make less on average than their parents, hourly wages have risen steadily since 2011. A report from Paychex and IHS Market cited by Accounting Today notes that those working in professional sectors earn an average hourly wage of $26.05, which is $5 per hour more than the typical millennial worker. As a result, they're positioned to afford larger, more expensive homes versus a smaller fixer-upper.
"Millennials typically want less hassle," Howard says, "so move-in ready properties are in high demand." (For more on this topic, check out: Forget Mortgage Rates: Rising Rents Are Pushing Millennials Into the Housing Market.)
The Bottom Line
Millennials have left a lasting impression on the housing market, and more evolutions may be on the way as the next generation of home buyers enters the fray. Focusing on the positive impacts created by millennials is key to keeping that evolution in perspective. An emphasis on technology, for example, may result in a streamlined, more efficient home buying process. And more millennials moving to the suburbs could help balance out the effects of rising housing prices in urban areas.
"The market will adapt and go through changes as it always does," Howard says, "and that just means a different market, not necessarily a bad one." (For additional reading, see: Millennials Are Closing Mortgage Deals Faster Than Ever.)