In the past two years, as the economy improved and home mortgage interest rates stayed in record lows, one key factor that had kept housing growth from kicking up to the next gear was the stagnation of entrance by Millennial first-time homebuyers. American homeownership rate in 2016 was lowest in five decades. The primary cause was attributed to Millennials – an age group that traditionally supplied a steady stream of first-time homebuyers – whose homeownership rate dropped to the lowest recorded at 34.1%. Well-documented explanations for this historically low rate include heavy student-loan debts, growing trend to boomerang back to parents’ homes, delay of marriage, increased career mobility and other factors that delay homeownership.
However, Millennials have not lost their desire to own a home. According to ValueInsured’s Modern Homebuyer Survey, over 8 in 10 Millennials (83%) believed owning a home is an important part of their personal American Dream. Nerdwallet published an in-depth report last year, citing their own research as well as findings from Zillow and Fannie Mae, pointed to the same homeownership desire among Millennials. Many experts concluded the simplest explanation to Millennials’ low homeownership levels is affordability.
That was Summer and Fall 2016. New research has since emerged that forecasts a housing surge in 2017, propelled by first-time home-buying Millennials. ValueInsured’s latest January 2017 Modern Homebuyer Survey indicates the same positive direction in consumer sentiments among first-time homebuyers:
- Among current renters who want to buy their first home in the near future, nearly half (48%) now believe they can afford a down payment; this represents a gradual growth in the past four quarters and a 14 percent point confidence surge form the Spring 2016 level of 34%
- Millennial renters’ overall housing confidence has risen 5.0 points in the past quarter, to 61.3 on a 100-point scale
- Over 4 in 10 Millennial renters (46%) now believe 2017 will be an easier year for them to buy a first home
- Among eligible Millennial first-time buyers who believe they can afford a down payment, 66% would buy sooner if they could be reassured they would not lose their down payment even if the market goes down when they need to sell
Imagine if even a small fraction of these optimistic Millennials do decide to step off the sidelines, it would have a highly positive impact on the housing market. Housing professionals must bear in mind that other buying obstacles continue to linger for Millennials. In additional to affordability issues, 66% say a potential job move or job change makes them concerned about the risks of buying a home; and 86% anticipate they will need to move within the next 7 years, giving them more reasons to be persuaded from homeownership.
The conclusion? 2017 could be an exciting year for housing as it opens doors to welcome more homeowners. The desire to buy is there, as are favorable demographic factors and an increased confidence in affordability. So long as the industry offers more buyer-empowerment solutions to make buying easier, less risky and more beneficial, the next generation is ready to embrace the American Dream of homeownership.