Our latest study shows that Millennials are tired of their ever-increasing rents, and are open to making compromises on their first home purchase. This group is the largest living generation, and as they age, they hit milestones in their lives that typically trigger an interest in homeownership, such as marriage or having kids. Right now, the largest share of Millennials fall between 26 and 28 years old, right around the median age of when Millennials are likely to tie the knot (27.4 for women and 29.5 for men). Our Manager of Housing Economics, Ali Wolf, recently conducted our second annual Millennial survey (over 1,000 responses across 49 states (sorry South Dakota!)) and provides some insights below.
Millennials are tired of ever-increasing rents. As it stands, a slight majority of the Millennials we surveyed currently rent. Of the older Millennials (28 years old+), 35% of them plan to own a home in the next 1-3 years. Part of that choice comes from the aforementioned lifestage catalysts, but another part stems from the competitor to the for-sale market, the rental world. In our survey, nearly 70% of Millennials faced a rent increase over the past year, with some 20% of them hit with more than 6% growth year-over-year. While in some top markets, the math favors renting over owning on a monthly payment basis, many Millennials are opting to own in order to fix their costs, especially in today’s low rate environment. Personally, it took a 5% rent increase each year for three years to finally push me into homeownership.
We do, however, acknowledge that rising rents can also be a hurdle for Millennials working to save for a down payment. For example, the average rent in Salt Lake City is just over $1,000 a month. A 5% increase in rent equates to a $50 additional cost each month, totaling $600 a year. While not a huge number, every additional dollar that goes to rent is pulled away from saving for a home.
Millennials give up bigger spaces for preferred location. For entry-level buyers, the first home is often full of compromises. We’ve met:
- Millennials who use their dining room as a beer pong room 11 months out of the year (except Thanksgiving, of course) to meet their requirement of formal space and fun space
- Young people who purchase attached homes despite a strong desire for detached living
- First-time buyers that will give up space to afford the monthly payment in their preferred location. We aren’t talking tiny homes (generally 100-500 square feet), instead, we see that the highest share of Millennials live in a home between 1,000 and 1,500 square feet. In fact, 60% of the Millennial homeowners we spoke with own a home under 2,000 square feet.
Breaking this out by region, we see a difference largely based on affordability and land availability. For example, the most popular square footage size of Millennial homeowners in California is 1,000 to 1,499, while it jumps to 1,500 to 1,999 for the Midwest.
New home buyers care about design. We noticed a startling difference between consumers interested in new homes versus existing in terms of design. Millennials that said they would likely buy a new home as their first home are two times as likely to care about design compared to those planning to buy an existing property. On a relative basis, however, the emphasis on design is lower for Millennials than for Gen Xers or Boomers due to affordability being one of the top driving factors for this cohort.
It is important to note that “design” varies depending on the geography and price point. We can help you maximize your profit by understanding where consumers place value by geography, consumer group, and even price point in many parts of the country. Please contact Mollie Carmichael on what active home shoppers are looking for on a granular level. Understanding what Millennials want in their next home will be crucial to success in 2018 as affordability continues to be more of a challenge.
Our team is partnering with an architecture firm at the International Builders’ Show in Orlando in January to cover this topic in great depth, including design solutions. Please contact us if you’d like to learn more about this cohort.
Ali Wolf, Manager of Housing Economics
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