Homes prices are rising in many parts of the country, competition is fierce, and Spring 2017 has been called the "strongest seller's market ever". We know this because, well, we have not exactly been living under a rock. But do we know how Millennial first-time homebuyers are coping with the red-hot market? This could be particularly note-worthy given that, before 2016 made way for 2017, many experts had forecasted 2017 to be a turning point for U.S. housing, when Millennial first-time homebuyers would finally begin entering homeownership in droves.
It is of course easier said than done. Home prices are at all-time high; May 2017 recorded the first time national median existing-home price passed the quarter-million mark, at $252,800. While recent jobs reports have been positive in terms of job growth and lower unemployment, wage growth has been described as sluggish. Interest rates are still historically low but rising. So are Millennial first-time homebuyers halted on their generational march to the American Dream?
Not exactly. Millennials are dealing with rising home prices and low inventory with their own strategies. We’re not sure if skipping avocado toasts really is one of them. However, a recent report did cite one in three recent homebuyers bought without first seeing the home in person; and among them, the biggest culprits – 41% – are Millennials. This is astounding if true, but it still does not help solve the rising-home-price-lagging-wage-growth challenge.
It also seems inconsistent given nearly half (48%) of all Millennial first-time buyers who hope to buy soon believe home prices in their area are too high and not sustainable, with 1 in 3 nationally – and 1 in 2 in California – going as far as saying there will be a real estate bubble and correction in their area soon. Perhaps the left-brain and right-brain are in conflict here, but regardless it is uncharted territory.
By examining its on-going quarterly Modern Homebuyer Survey, ValueInsured spotted several trends among Millennial first-time homebuyers that could be part of their coping mechanism as home prices heat up:
- In Spring/Summer 2016, 28% of all Millennial first-time homebuyers surveyed said they planned to put less than 10% down payment in their upcoming home purchase. Today, 41% plan to put less than 10% down, representing a jump of 13 percent points in 12 months.
- 12 months ago, after the national median existing-home price was reported at $239,700 in May 2016, 6% of surveyed Millennial first-time homebuyers planned to seek financial help from their family as a main source of funding for their next home purchase down payment. Today, 18% plan to do the same.
- During the same period, more Millennial first-time buyers also plan to seek down payment help from a government- or state-run grant, up from 1% to 8%.
With more lenders offering low down-payment home loans and interest rates still relatively low, Millennial first-time homebuyers certainly have the right strategies in mind to combat rising home prices by putting down a smaller down payment, particularly if the alternative is to delay buying all together. According to a latest report, 60% of first-time homebuyers contributed 0-6% down payment to their home purchase in May 2017.
About 4 in 10 of Millennial first-time homebuyers who plan to call mom and dad for help may also be in luck, as according to the latest Modern Homebuyer Survey, 42% of Baby Boomers are open to helping their adult children financially with buying a home. 44% of Boomers went as far as saying they believe it is a “natural responsibility” for parents to help an adult child financially with home buying. Or maybe they could at least help pay for the avocado toasts.