New data indicates that millennials may be an even stronger-than-expected driver of starter home demand in the next few years
By Andrew Leff, National Accounts Executive for Bank of America
As builder confidence neared its highest point this May in roughly a decade, builders may have yet another reason to feel upbeat about the future. While many builders are keenly aware that millennials – now the most populous living generation – will generate increased demand for housing in the next few years, they may be pleasantly surprised to learn just how great this millennial demand could be.
Builders take note: forward-thinking millennials are buying homes – and they are happy about it. While “dreamers” reported last year that they wanted to skip the starter home, Bank of America’s second annual Homebuyer Insights Report revealed that millennials who have taken the plunge into homeownership are buying the house they can afford now and looking ahead to their ideal home in the future. In fact, a large majority (68 percent) of millennial homeowners say their current home is a “stepping stone” to their forever home. The millennial homeowners surveyed send an encouraging message to their peers who have not yet purchased a home: “Get off the sidelines! Buy a home and begin enjoying the benefits sooner.”
Bank of America’s 2017 Homebuyer Insights Report explored the attitudes and behaviors of today’s homebuyers, surveying current and prospective homeowners of all ages. Data from the report shows that some millennials are recognizing it might not make sense to wait for a forever home. Millennials recognize that important opportunities for building wealth can be lost waiting indefinitely for “just the right time” or saving for the property that they plan to live in for the rest of their lives. And while younger buyers see the benefits a home purchase can have on their long-term finances, they are also taking a thoughtful approach by improving their credit and building their savings.
Other research supports this trend highlighted in Bank of America’s new report. As noted in an earlier article by Builder and Developer, 55 percent of millennials want to buy in the next one to five years, and nearly 25 million millennials plan to purchase over the next five years (Meyers Research). With those numbers in mind, it’s easy to see why savvy builders are anticipating strong demand for starter homes, especially within the millennial segment.
Additionally, the bank’s 2017 report shows that millennial homeowners are not looking back after making a home purchase. Nearly 80 percent report homeownership has had a positive impact on their long-term financial picture, and millennials overall are more likely to see the financial benefits of purchasing a home than first-time buyers overall. A similar number (86 percent) of millennials believe owning a home is more affordable than renting. This is in sharp contrast to those consumers who have not yet purchased a home, as they are split on what’s more affordable: 54 percent say owning, compared to 45 percent who say renting.
While they are juggling a variety of financial priorities, including paying off debts and bills (61 percent), improving credit scores (47 percent) and paying off student loans (32 percent), many prospective buyers see homeownership on the horizon and have started to plan for a down payment. Such data from the report indicates that the potential for future housing demand beyond just the millennial segment is quite strong.
Another data point from the survey related to perceptions homeowners have regarding home value, which should be of particular interest to the builder community: just one-third of owners say a home’s value is determined by how much it cost to purchase. Beyond financial value, current homeowners also see clear emotional benefits of homeownership, as nearly all say they are proud of owning (95 percent) and treasure the memories they have made (91 percent).
The report highlighted a major misconception related to the requirements for home ownership. Almost half of first-time buyers surveyed thought they would need 20 percent or more of a home’s price for a down payment, which may be why just 21 percent said they thought they could currently make one. We see this data as an indication that many prospective buyers and especially first-time homebuyers could benefit from further education regarding the realities of a home purchase, and in particular on down payment issues.
We encourage buyers to ask their mortgage lender whether they’re eligible for low down payment and/or assistance programs. There are many online tools that can help buyers find down payment programs to put a home purchase within reach. Financial institutions can help as well – Bank of America, for instance, offers resources like its Affordable Loan Solution mortgage and the bank’s Down Payment Resource Center.
Homeownership plays an important role in the personal and financial well-being of individuals and families, and millennial homeowners who are just now beginning to experience the benefits of ownership can attest to this perhaps better than anyone else. We’re excited about the new findings from this year’s Homebuyer Insights Report – especially as related to the signs of increasing demand for housing among millennials – and what this may mean for builders in the months and years ahead.
Research for Bank of America’s Homebuyer Insights Report was conducted online from January 24 – February 2, 2017. A total of 4,906 adults age 18 and above were surveyed, including 1,268 current homeowners and 435 prospective homeowners.
Andrew Leff is the National Builder Executive for Bank of America. For more information on the Bank of America Homebuyer Insights Report, visit info.bankofamerica.com/2016-homebuyers-report/.