Why Is It Harder For Millennials To Buy Houses?

Today’s real estate market supposedly belongs to the sellers, with demand outranking supply. Yet that could change in the next few years if more millennials don’t start buying houses. What’s holding them back? As with many things, the issue comes down to money. Values skyrocket in a seller’s market, which poses a problem for millennials who find themselves currently struggling to land decent jobs. Furthermore, those with student debts hesitate to seek a loan, and many wouldn’t qualify anyway.

Fortunately, sellers can still get their homes off the market and into the hands of millennial home buyers. To start, they’ll need to better understand the problem.

Selling a House to Millennial Buyers

Home sellers must start by understanding their buyer’s concerns. You can review this resource if you need to sell your house fast and decide on a marketing strategy. In today’s market, millennial buyers worry primarily about the impact a mortgage may have on their financial futures. Sellers must break through these fears by making sure millennial home buyers understand their options. Semi-competitive prices might not hurt, either. By earning the buyer’s trust and addressing their fears head-on, sellers can continue taking advantage of the current housing market while it’s still hot. It might not stay that way forever if buyers’ fears drive down demand, so the time to act is now!

Market Prices Are Rising Too Quickly

In the past year alone, real estate values rose by almost 20% across the United States. Compare this to national income levels, which rose by less than 5% over that same period. This creates a market that grows less affordable for millennials by the day. The problem gets worse. Most experts suggest that home buyers should never allocate more than a quarter of their monthly income to their mortgage. As market values balloon to the point of dwarfing average income levels, it becomes nearly impossible for new homeowners to follow this advice.

Naturally, average home values vary from one region to the next. However, attempts by home buyers to resolve the issue only make things worse. For instance, home values in California now average nearly $800,000. Most new homeowners’ budgets average less than half that. What happens when they move to a state such as Texas to cut costs? The market values in that state become overvalued by more than 60%. Most buyers aren’t willing to relocate in the first place, especially not for what might be a temporary solution.

Millennials Aren’t Finding Jobs Easily

The definition of a “good job” might seem fairly subjective, but researchers put average earnings for decent work at about $35,000 per year. While the previous generation usually landed such jobs at about the age of 27, most millennials haven’t done so until the ages of 30 to 35.

Why does such a seemingly small gap make it harder for millennials to buy houses? To better understand, take the hypothetical journey of a fictional millennial named Lenny. Here’s what Lenny’s life might look like after college:

  1. Without a job, Lenny moves in with his parents to save money.
  2. Lacking true independence, Lenny takes longer to get married.
  3. Without a spouse, Lenny feels less pressure to settle down and buy a house.
  4. Desperate to escape his parents’ house, Lenny moves to the city where there’s more work.
  5. Lenny grows accustomed to city life and shapes his future thusly.

If this sounds far-fetched, it shouldn’t. As recently as 2018, nearly 90% of millennials were opting to live in the city as opposed to the suburbs. As it gets harder for millennials to buy houses, they simply shape their lives so that they won’t need to anymore.

Buying a House Could Mean More Debt

Due to rising education costs, only a decreasing number of individuals can afford the college degree often necessary to secure a good job. These individuals make up the bulk of the millennials who rake in a decent salary by the age of 35. Unfortunately, those rising tuition levels mean that most of those graduates enter the workforce already buried in debt.

In 2018, estimates suggested that new homeowners with no debt whatsoever often saved for more than 7 years to afford their first payment on a house. For those struggling to pay off college loans, it can take more than a decade. This leads to two problems. First, older home buyers easily price their younger competitors out of home sales due to their higher income levels. Second, many millennials simply opt out of home buying altogether out of fear that they’ll bury themselves deeper in debt.

Despite bold promises by politicians to cancel student debts, the problem persists. The average student debtor currently owes about $40,000 with no plans to worsen their concerns by taking out a home loan. Sellers simply won’t get through to most millennials without finding a way to address these concerns.

Millennials Have Trouble Getting Loans

Even if a millennial lands a decent job and decides to break through their fear to buy a house, they’re still stuck grappling with numerous roadblocks to qualifying for a mortgage. This problem began during the COVID pandemic. Since then, the issue’s improved slightly, but not enough to make a difference for some prospective home buyers.

This relates to the cost issue since most buyers won’t find it possible to acquire a house with anything less than a 20% down payment. Lower costs usually mean higher interest rates, and few millennials who’ve lived through both a housing bubble and a pandemic are eager to take that sort of gamble on their financial future. Moreover, those who do choose to take the gamble must deal with loan officers who frequently look down on borrowers. One interview with a loan officer blamed debtors for the financial crisis, suggesting this to be a widespread belief among those in the industry.

Home buyers need to trust the people they work with. When banks accuse debtors of malicious borrowing, while many debtors accuse banks of predatory lending, trust goes out the window on all sides. Anyone looking to sell a home to a millennial in today’s market needs to become the one face they can rely on in the transaction. Otherwise, the sale won’t get far.

Types of Loans For Millennials

As a millennial, you have plenty of options when it comes to taking out a loan for your home. Whether you’re looking to buy your first home or investment property, there’s a loan out there that’s perfect for you. In this blog post, we’ll outline some of the most popular types of residential loans for millennials so that you can make the best decision for your needs.

types of mortgage loan programs for Millennials

Fixed-Rate Mortgage:

A fixed-rate mortgage is exactly what it sounds like: a mortgage with a fixed interest rate that will never change over the life of the loan. This type of loan is perfect for millennials who are looking to purchase their first home, as it offers stability and predictability when it comes to your monthly payments.

Adjustable-Rate Mortgage

An adjustable-rate mortgage, or ARM, is a type of mortgage that has an interest rate that can change over time. ARMs typically start with a lower interest rate than fixed-rate mortgages, making them attractive to millennials who are looking to save money in the short term. However, it’s important to be aware that your interest rate could increase over time, so this type of loan may not be ideal if you’re looking for long-term stability.

FHA Loan

A Federal Housing Administration (FHA) loan is a type of mortgage that is insured by the FHA. These loans are available to borrowers with less-than-perfect credit, making them a good option for millennials who may not qualify for a traditional loan. FHA loans also have lower down payment requirements than other types of loans, which can make them more accessible for millennial homebuyers.

VA Loan

A VA loan is a type of mortgage that is available to eligible veterans and active duty military members. These loans are backed by the US Department of Veterans Affairs and offer several benefits, including no down payment, no private mortgage insurance, and low-interest rates. If you’re a millennial who is looking to purchase a home with a VA loan, be sure to talk to a lender about your eligibility.

Now that you know more about some of the most popular types of residential loans for millennials, you can start shopping for the perfect loan for your needs. Be sure to compare interest rates, down payment requirements, and other terms and conditions before you make your final decision. And if you have any questions, don’t hesitate to reach out to a mortgage professional for help. Are you ready to start shopping for a loan? Contact the team at Capital Lending Network today! We’ll help you find the perfect loan for your needs and guide you through the entire process, from start to finish.

Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.