The housing market goes through its ups and downs. Lately, one factor that has been affecting the market is the buying preferences of millennial homebuyers. They’re at a stage in their lives where they’re settling down and looking for a more permanent place to plant some roots.
The Cheat Sheet: What are some big housing trends impacting the U.S.?
Danielle Hale: While there are still plenty of hot housing markets across the U.S., we have seen some signs of slowing in the housing market: inventories are starting to climb in some markets and price cuts are more prevalent. Additionally, the number of existing home sales has been lower than last year each month since February, and home price growth has slowed from the double-digit pace we saw last year. This slowdown could present an opportunity for buyers who have yet to succeed in the most competitive home buying season in recorded history in which more buyers than ever before are contending with fewer homes for sale.
CS: How are millennials impacting the housing market?
DH: Millennials are driving the housing market in a big way. Now the largest generation, they are aging into years where they’re more likely to form households and eventually think about homeownership. This should provide a positive boost to the housing market.
At the same time, this generation has struggled with debt and research suggests that has impacted the ability of some millennials to become homeowners as soon as they would like. Additionally, rising prices and mortgage rates are cutting into affordability, forcing many home shoppers, especially younger buyers, to look for smaller, less expensive homes. This is true of both home shoppers and successful buyers.
CS: What makes homes in this year’s top 10 hottest markets different from other homes? What makes these areas “hot”?
DH: Realtor.com researched 32,000 ZIP codes to determine the hottest real estate markets in the country. ZIPs were ranked as hot if they have relatively plentiful demand, measured as page views per property on Realtor.com, and relatively limited supply, measured by looking at time on the market or how quickly homes are selling.
The hottest ZIP codes are in areas where homes are relatively affordable. Although the median price for a home in these markets is higher than the typical U.S. price, all but two ZIPS are more affordable than the typical home in their county or metro area. These areas also have thriving local economies where jobs are plentiful and incomes are higher than what’s typical nationwide. Millennials in particular are doing well in these markets with above-average incomes, which is helping them drive home purchases. They typically make up 34% of recent home purchase mortgage originations.
CS: What are millennials looking for when scouting new neighborhoods?
DH: In previous surveys we’ve conducted, we find that millennial shoppers are looking for a lot of the same things that other buyers are looking for–a garage, an updated kitchen, large back yard and open floor plan top the list of home features they’re after. They’re not picky about home style. When it comes to the neighborhoods they’re after, we know millennials are looking for top-notch schools. Data also suggests affordability is important, which makes sense considering many millennial buyers are getting into the housing market for the first time and don’t have the benefit of using equity from a previous home purchase.
CS: What advice would you give to a young person who wants to buy a home but doesn’t have strong financial footing yet?
DH: A lot of younger buyers have the misconception that you have to have a 20% down payment to purchase a home, but successful millennial home buyers often have much smaller down payments. While it’s great to make a larger down payment if you can, shoppers should know that many types of loans such as FHA, VA, and USDA loans are available to help buyers become homeowners with a lower down payment. Even conventional loans can be made with less than a 20% down payment as long as mortgage insurance is also added.
Of course, a lower down payment means a larger mortgage and higher monthly costs. Especially if buying a home will mean an increase in housing costs, young buyers might want to “play house” by putting aside an amount equal to the extra cost of buying a home to see if they can manage it. This practice has two benefits: 1) you get to test out what it would be like to make a higher monthly payment and see if you feel comfortable with it, and 2) at the end of the trial period, you have some additional savings set aside.
CS: Anything to add?
DH: Buyers in the market for a home or owners hoping to sell can find additional economic and housing market insights to guide their journey at realtor.com/research or follow us on Twitter @RDC_Economics.
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