Homebuilders are getting creative with amenities, finance, and location to help increase sales to millennial buyers
Today’s largest generation at 79 million, millennials are now looking at homeownership. Millennials are those that were born between 1981 – 1996. They have possibly the largest impact on the housing industry if the trend of home- ownership takes hold for the coming years.
What attracts millennial couples to purchase a home? There are a variety of indicators to consider:
1) Perceived Value
Millennials are the generation that came to adulthood during the great recession. For the first time in a couple of generations, this population may not increase their standard of living over their parents.
The greatest factor driving their caution is a delay in forming households. This delay means less household income for homeownership. According to the National Association of Home Builders (NAHB) 35 percent of older millennials are looking to buy a home in the next one to three years.
When millennials do start their house hunt, they are inherently looking for value. Homes that have been well-kept and homes that are updated and move-in ready are highly desir- able. Millennials rate easy-to-maintain homes higher on their list.
2) Owning vs. Renting
What truly is the difference for the millennial household lifestyle? Actual home appreciation values over the course of a 30-year loan can be, on average, around 0.7 percent. So why would this be a good investment? Because some return is better than no return if you have to pay for your housing to live anyway.
That has been the thinking all along with the Baby Boomers and the Gen X populations until the housing bubble burst. Now renting has become the flexible and attractive resource for millennials to live in desirable – and more expensive – urban areas.
What is the true value of homeownership? It can vary and there are so many indicators that affect outcomes, such as location, condition of the property, and the economy. According to NAHB, 52 percent of the millennial population are contemplating homeownership now.
Renters’ median housing cost rose by 11 percent between 2001 and 2016 and their incomes fell by 2 percent, according to Har- vard University’s Joint Center for Housing Research. That means that renters are getting less for their rent, which may spur them to look into homeownership.
3) Amenities vs. Maintenance
In some cases an apartment rental can offer more amenities as a part of rent vs. a starter home property. Pools, workout areas, rooftop decks, bars and restaurants, etc. are desirable for those looking to have an active lifestyle without the upkeep.
Recently the U.S. Census Bureau found that 63 percent of millennials who bought homes have regrets. Those regrets are due to the hidden costs associated with buying and owning a home. These fees can be upkeep and insurance along with regular repairs. Not knowing an approximation of these fees can be is a deterrent to making a long-term investment.
4) Urban vs. Suburban
Millennials are looking for urban housing where they are closer to restaurants and shopping within walking distance if possible. These neighborhoods tend to be mid-century, prewar, or Mediterranean styles in single occupancy dwellings with historic details.
The question here is how much maintenance is worth the association fee with a rental? All costs should be weighed such as renter’s insurance, lawn maintenance, utilities, etc.
The cost to be near the action, so to speak, may be more possible with a rental vs. a home, which is why renting is so popular in more expensive cities. Move-in ready rentals have conditioned millennials to look for move-in ready first homes. Also, millennials usually do not have extra discretionary income around to fix up properties in addition to making their starter home purchase as a result of delayed wage growth in the recession.
5) Low Inventory
Because housing values took a big dip after the great recession, a lot of property owners were forced to either rent the property or hold onto it until the value bounced back up so they didn’t lose money on the sale. Starter homes have been purchased by investors to turn into short-term rentals for greater gains. With less inventory, millennials are having a harder time finding desirable properties and that can deter purchases even further. To find desirable and affordable properties in metro areas, millennials may need to look at fixer upper properties.
According to historical data, the NAHB/ Wells Fargo Housing Opportunity Index shows that the peak of housing affordability was reached in 2012 when 78 percent of new and existing home sales were affordable for a typical family based on their incomes and current interest rates. By the third quarter of 2018, that score of 78 had plummeted to 56, meaning only 56 percent of home sales were affordable.
In short, if inventory were higher of well-maintained smaller homes, millennials would be buying now. All indicators are that they may be shifting to purchasing in the next three years.
Barbara Schmidt is a nationally recognized Interior Designer and Marketing Expert creating authentic storytelling about spaces, places and trends. For more information, please visit studiobstyle.com.