This year, millennials are expected to buy the bulk of real estate in the United States. After years of renting, the generation once known for its ambivalence towards home buying is doing just that. Considering millennials are currently the largest generation in the U.S., it’s not surprising that their activities accounted for 51% of real estate transactions in 2020. When you take into account the financial struggles many millennials have faced, however, this borders on a miracle.
From crippling student debt and job insecurity to increased costs of living and lack of savings, many millennials aren’t ideal candidates for homeownership. Despite these challenges, however, they’re finding ways to make the dream of having a place of their own a reality.
How are millennials buying houses? Why are they motivated to do so?
Why Millennials are Buying Houses
Millennials may have eschewed many of their boomer parents’ values, but homeownership isn’t one of them. Despite renting longer and waiting to purchase their first homes, millennials are now interested in buying houses. For years, the real estate market feared that millennials were indifferent to buying houses. It turns out this generation was just waiting for the right time.
In 2020, according to Pew Research, 4.8 million millennials will celebrate their 30th birthdays. The generation that caught flack for their love of avocado toast is starting to experience life events like getting married and starting a family.
Accompanying these important milestones is often the desire for more space. A changing family situation is one of the signs that it’s time to purchase a home, but desire alone won’t fund a down payment. In order to fulfill their homeownership dreams, millennials are getting creative.
Putting Less Down
From debilitating student loans to dwindling savings accounts, the financial woes of millennials are infamous. Typically, home-buyers put down 20% on a new house. It’s one of the most formidable new homeowner expenses. For many millennials, the traditional 20% down payment just isn’t possible.
Rather than letting that deter them, some millennials are making smaller down payments. According to data collected by the real estate listing site Clever, 70% of millennials revealed they intend to put less than 20% down on their new home. Some survey respondents said they plan to go even lower, with 53% saying that their down payment would be less than 15%.
Smaller down payments come at a price, but millennials are willing to pay it. In order to pay less upfront to get the keys of their new home, buyers who put down less than 20% are required to take on private mortgage insurance. The exact amount of this insurance is based on your credit score, loan amount, and down payment amount, but it can cost homeowners between .5% and 1.5% of a home’s value.
Whether making a traditional down payment or settling for something smaller, many millennials rely on help from family. According to Clever’s survey, 27% of millennials planning to purchase a home in 2020 anticipate receiving a loan, inheritance, or gift from family specifically for their down payment.
Opting for Smaller Homes
As demonstrated with making smaller down payments and accepting help from family, millennials have an open-minded approach to homeownership. Unlike many of their boomer parents, millennials are willing to consider smaller homes.
When purchasing their homes, millennial home-buyers are satisfied with just 1,700 square feet of space compared to boomers, who prefer homes with around 1,900 square feet. Millennials prioritize quality over quantity.
Another reason millennials are opting for smaller homes is their concern for the environment. Many millennials are conscious of their impact on the environment and look for ways to not make trash or live in excess. They embrace minimalist zero-waste lifestyles, and this ideal carries over to their housing preferences.
Embracing Life in the Suburbs
Where are millennials buying their smaller homes? After years of downtown living, they’re embracing life in the suburbs. While living in urban centers was enjoyable for a time, millennials are coming to terms with the fact that it’s too expensive to be sustainable. For most, renting was manageable, but buying a home is out of the question.
So millennials are turning to the suburbs. They’re willing to deal with longer commute times and less convenient locations in exchange for the suburbia perks of big kitchens and garages. They are thrilled to have yards, and they’re maintaining the value of their homes by increasing curb appeal.
In response to the millennial migration to the suburbs, many suburban areas have become more dynamic, shifting to building trends to accommodate millennial tastes. These new developments are a far cry from the cookie-cutter houses frequently associated with suburbia.
Millennials are both finding homes and feeling at home in the suburbs. Through a variety of strategies such as opting for smaller homes and making smaller down payments, millennials are following in their boomer parents’ footsteps and buying houses. It took time to get here, but now, millennials are buying houses more than any other generation.
Guest Author Bio
Jori Hamilton is a writer and journalist from the Pacific Northwest who covers social justice issues, healthcare, and politics. You can follow her work on twitter @HamiltonJori, and through her portfolio at Writer Jori Hamilton.