Millennials are not buying homes. Is this true or myth?

There has been a lot of talk that millennials are not buying homes. Is this true or myth?

First, while the purchase numbers for millennials are down, millions of people buy homes every year, including millennials.

Most of the talk about millennials centers around the inability to purchase a home because of student loan debt. Studies after study does show that tuition costs are up, and that student loan debt has roughly doubled in the past 10-years. There is also a noticeable decline in homeownership rates among millennials the past decade.

Too much debt reduces the maximum amount of home lenders will allow someone to purchase. This is known as debt-to-income ratios.  Less that 30% of your income spend on just the home is considered as a safe house payment, while under 45% of income should be spent on the house, plus car loans, credit cards, student loans, etc.

But is is all really student loan debt, or are there other factors involved.

Estimates suggest that around 35% of the decline in homeownership in the past 10-years is simply due to student loan debt. That leaves  whopping 65% to other factors.

Assuming these numbers are accurate, and many suggest the student loan blame is not nearly as high as believed, I as an actual Mortgage Loan Officer, can attest that yes, student loan debt is a factor in some cases. But I see many other factors on a daily basis, the biggest being simply a low desire to own. This primarily resulting from observing their parents, friends, neighbors, and relatives suffer through the housing bust that started in 2007.

Other items I see include very poor credit, and a lack of knowledge on how credit and credit score work. Lack of down payment, and a lack of willingness to purchase a starter home. Many of the millennials believe they should jump right into a big, beautiful, white picket fence dream home as their first home.

Lack of Starter Homes?

I, like many people started with an old small home, in a not so perfect neighborhood.  As I got older, got married, and increased our family income, I moved up into bigger and nicer homes, until now currently being in my existing “big beautiful home” for 19-years.

The me me me, now now now, pay for it later attitude really crept into society over the past 20-years.  Having champagne taste for homes on a beer budget has held back more potential first time buyers from purchasing a home than most other items I see everyday. They simply refuse to buy a starter home.

Granted, a starter home today tends to have a heftier price then years back.  As a percentage of income, low end starter homes suck up more of the owners paycheck than ever before. This too has a huge effect on first time home buyers, regardless if they have a college degree, and student loan debt or not.

Poor Credit

Another major issue I see is simply poor credit. As the days go by, it would appear to me that the population has become dumber and dumber about simple concepts, like paying your bills on time. It is very common for me to see potential home buyers in the 25 to 30-year old range have horrible credit. Then when they realize the poor credit prevents them from buying a home, it may take them a few years to improve their credit.

More than just student loan debt

The New York Fed recently reported that an estimated 360,000 people would have bought a in 2015 had tuition costs remained the same as they were in 2001. There is no doubt student loan debt has been a factor.

As an actual Loan Officer, active in the business currently, and having been so for more than 20-years, I am simply saying there are a multitude of reasons why people don’t buy homes.

The constant banter of it being student loan debt preventing ownership is heard by potential home buyers who have student loan debt. Many clients I speak to start out the conversation saying the don’t think they can buy a home because of student loan debt, and are very pleasantly surprised when I issue them a Pre-Approval Letter.

Of course every person and every situation is different.

Don’t Assume

If you want to buy a home, regardless of age, income, or student loan debt. DO NOT ASSUME. Contact a local mortgage broker in your area (I lend in MN, WI, and SD). Give them a full mortgage loan application so they can zero in on your individual situation.  You too may be pleasantly surprised, and enjoying the benefits of home ownership next month.

 


Don’t believe the hype – Millennials can still buy homes

Millennials can, and still want to buy homes.

While it is true the American dream of home ownership is harder to achieve than in the past, it isn’t impossible. Young adults, more than ever in the past may be delaying home ownership because of student loan debt, and fear of the stability of their young careers. But they are still buying homes, just a few years later in life than in the past.

real1According to data from Zillow, in the 1970’s, first time home buyers on average had rented for just 2.6 years prior to buying a home, and was about 30-years old.  Today, the average first time home buyer has rented for 6-years prior to buying a home, and is three years older (33-years old).

The same data shows that in the early 1970’s, the average first time home buyer bought a home with a price 1.7 times their household income.  Today, that first home costs 2.6 times their yearly income.

Clearly this data shows that it is tougher for first time buyers to save for down payment, and to afford a home. At the same time, this lines up with other delayed aspects of adulthood from years past, including getting married later in life, starting families later in life, and having fewer children.

Just like generations past, once people start having kids, they start looking for homes to raise those kids, especially if they feel secure in their young job careers. But things have changed, many people years ago could count on right out of high school having a job they could start and stay until retirement with good benefits.  That just isn’t the case today. Another survey showed the average new buyer spent 4.5 years in their job field, and were at their current job for 3-years.

Most new home buyers still save their own money for down payment, which has become a bit harder with rising home prices, and high rents making it harder to save for a down payment, but the long held tradition of down payment help from Mom and Dad is still alive and well – and a very popular option.

Apply Online

Low mortgage rates, low down payment loans like the 3.50% down payment FHA loan, and the 3% down payment conventional loan, combined with down payment assistance programs significantly close the gap needed to buy a home.

The bottom line is there is a continued strong desire to buy among millennials.  It is just that the timelines to buy that home appear to have been pushed back a few years from generations past.

If you feel you are ready to buy in MN, WI, or SD – we can help.  Just click here to apply online.

MN first time home buyer programs