The struggle is real for Millennial homebuyers
After years of many experts lamenting how Millennials weren’t interested in becoming homeowners, it turns out many are actually diving in. But they’re facing a lot of competition.
Millennials are the largest group of homebuyers, according to Ellie Mae, a software company that analyzes mortgage data. In January, Millennials represented around 45% of all purchase loans, up from 42% the same month in 2016.
And many expect more Millennial house hunters to jump into the market this spring buying season.
But their path to homeownership won’t be easy.
“Millennials are mostly first-time buyers and they are competing against repeat buyers who have more buying leverage and experience,” said Javier Vivas, manager of economic research for Realtor.com. He added that Millennials recently became the dominant group of users searching for homes on the website.
New buyers this spring will also be up against buyers who started looking last year, but still haven’t bought a home.
A shortage of available homes has driven up prices — particularly among starter homes that tend to fall within first-time buyers’ budgets.
There were 3% fewer homes on the market in February compared to a year ago, according to a recent report from Zillow, and home values are up nearly 7%.
That’s led to bidding wars and fierce competition, especially in the lower end of the market.
When Andy Greene and his wife Jenna began looking for their first home together near Columbus, Ohio, they found themselves in a super competitive market.
“We would get a notification that a house went on the market. You had to go see it that night … you had to go the same day it was out,” said Greene.
They thought they found their perfect home early in their search and put in an offer. But they weren’t the only ones. The seller received 13 bids.
Despite going $10,000 above the asking price, the Greenes were not the winning bidders.
“It was a little defeating,” said Greene. “It made us wonder if we were actually going to be able to make it work and second guessing if we could find something we could afford.”
Rising home and rent prices can make it difficult for many first-time buyers and young people still establishing their careers to save for a down payment.
The Greenes, who both work full-time, saved $30,000 for a down payment, mainly by living off one income and banking the other.
They were tempted to increase their budget as they continued their search, but they stuck to their pre-determined limit. Finally, after three months of hunting, they found a house and had their bid accepted. They’re scheduled to close this month.
“We didn’t want to be in a house we couldn’t afford,” he said. “And we didn’t want to have to buy a house and dump money into it.”
For first-time buyers looking to become homeowners this year, experts say do your homework: determine your budget, prioritize your requirements and get pre-approved for a loan.
“Be first in line,” advised Vivas. “Start your search early, figure out your budget early on.”
Millennials are also facing a tighter lending environment compared to a decade ago as banks stiffen up on credit requirements.
But despite the obstacles they face, Millennial buyers do have a major advantage: low interest rates.
“If you compare their access to credit and ability to get into a home, it’s far easier for Millennials than previous generations,” noted Joe Tyrrell, executive vice president of Ellie Mae. “Back when Millennials’ parents were buying homes, they had higher interest rates and there weren’t down payment assistance programs.