Although millennials are officially the largest generation, they continue to lag behind prior generations in terms of home ownership. This is a challenge for builders of new homes. There’s a lot of on-paper potential to sell new homes to millennials but a starkly different reality. Today, we’ll look at a few trends regarding millennial home ownership. We’ll also offer ideas for how to help them address those issues.
Affordability is still a crushing burden for millennials
Simply put, most millennials can’t afford homes. They’re just too expensive. And according to a study from Apartment List, this fact shows in the noticeable home ownership gap between millennial home ownership rates and the home ownership rates of previous generations.
That same study also found that only 15% of millennials have at least $10,000 saved for a down payment. More worryingly, a whopping 63% have no down payment savings at all. And the COVID-19 pandemic made saving even harder, especially for younger, first-time home buyers.
In fact, more millennials have begun to give up on the idea of home ownership. From 2018 through 2020, the share of millennials who said they’d never be able to own a home rose from 10.7% to 18.2%.
What builders like you can do
There’s no silver bullet for builders to address the affordability crisis. However, if there are any silver linings in what the COVID-19 pandemic wrought, it might be the advent of working remotely becoming more of the norm, and increasing desire among millennials for lower-density living.
When combined, these two factors may entice millennials to look more seriously at suburban housing, which often provides more living and working space within the home. Millennial buyers had been trending toward suburban living even before the pandemic. With more opportunities to work from home, you might be able to attract qualified buyers who feel less tethered to living in urban areas.
The housing market is facing historic inventory shortages
On both the new home and resale sides, housing inventory is at historic lows. Between high prices for building materials like lumber and the previously mentioned affordability crisis millennials experience, millennials face unprecedented obstacles to home ownership.
Anecdotally, millennials are challenged by the fact that cash-paying investors often outbid them on resale homes. As mentioned, a big majority of millennials have no money saved for a down payment. This keeps a huge portion of them out of the market.
Even more frustrating, even the 15% of millennials who have $10,000 or more saved for a down payment often can’t compete with investors who can pay well over asking price in cash. According to the National Association of REALTORS, buyers typically paid just under $340,000 for a home from April 2020 on. Even with historically low interest rates at the time, that’s still about $64,000 in down payment money for a conventional loan.
Between fewer options and deep-pocketed investment buyers, younger, first-time home buyers are often crowded out of the market.
What builders like you can do
Though the inventory shortage cuts both ways, builders of new homes could have a slight advantage. Millennials are more willing to move to the suburbs and exurban areas. They like the sense of community that tract and master-planned communities offer. They also want nearby amenities like schools and restaurants. You’re likely building neighborhoods like this in areas like these.
Additionally, with the right marketing plan and communications, you may be able to tap into a market of millennials who can afford a down payment but are getting squeezed out of the larger, extremely competitive resale market.
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