The economic recovery has been good for many Americans, and one of the side effects is a surge in homebuying among millennials. Those 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 in the years 2014–2016, according to a research report by Fannie Mae.
"There's been an influx of millennial homebuyers 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 homebuying is just getting underway. "Expect more disruption in the next five years as millennial homebuying accelerates," Eisenberg adds.
As millennials enter the housing market in greater numbers, they're approaching it in a much different way than previous generations of home buyers.
- A generational shift in homebuying is getting underway, with millennials (especially those in their late 20s and early 30s) finally beginning to purchase residential real estate.
- Technology plays a big part in millennial house-hunting, with this generation using mobile devices to search, view properties, and communicate with real estate agents.
- Millennials are eschewing starter homes in favor of better properties, but they opt to buy in the suburbs, instead of more costly urban areas.
Millennials are dedicated to their devices, and for this group, technology plays a central role in homebuying. 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.
Millennials are also around twice as likely to use their mobile devices in their search than older baby boomers, with 58% of millennials finding the place 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, a 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."
The percentage of homebuyers comprised of millennials, according to the NAR 2019 Home Buyers and Sellers Generational Trends Report.
Communicating With Realtors
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 reports that millennials use 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 in how agents list homes. Hussar says that tech-savvy millennials are leading agents and brokers to introduce features like live streaming 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).
In Demand: Deluxe Homes and Suburban Locales
Millennials want homes, but they don't want just any home. According to an article in Realtor Magazine, they're increasingly skipping the starter home and immediately going for something bigger and more expensive. 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 plunk down for their first purchase.
And almost half of Millennial homeowners—47%—prefer the suburbs to the big city or rural areas, a blog post by online real estate company Zillow reports. The rental market has played a part in pushing them toward the 'burbs. According to the November 2019 "Rentonomics" data from the website Apartment List, rent prices increased by 1.3% from March to June, the fastest growth over any three-month period since the summer of 2017. Year-over-year, overall rent prices are up 1.4% in 82 of the 100 largest cities in the country—a slight slowdown from 2014 to 2017 when increases were as high as 3.5%, but still significant.
"All across the country, rent prices are generally increasing in urban areas," Eisenberg says, pointing 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."
Impact of Increasing Incomes
The desire for more deluxe digs reflects millennials' delay in entering the housing market. They've waited longer for a home of their own and, now that it's time, they want a place they can stay for a good long time. And they can finally afford it: While they make less on average than their parents, millennials' incomes are increasing—their 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."
The Bottom Line
Millennials have left a lasting impression on the housing market, and more evolutions may be on the way as this next generation of homebuyers 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 homebuying 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."