For just about anyone, buying a home for the first time is likely to be the largest and most complicated transaction of an entire lifetime. It’s a potentially rewarding path to travel, but one that is long and fraught with complications and expenses.
Today, many members of the millennial generation are entering the housing market and buying their first homes. However, the difficulties they are facing are even greater than previous generations. Due to increasing amounts of student debt, sluggish wage growth, and other economic and demographic factors, millennials must overcome more barriers to homeownership than those who came before them.
Steven A. Boorstein, a financial planner at RockCrest Financial and a self-identified member of Gen X, says that millennials have it harder. “My general take of things, and I’ve been in this business for almost 20 years now, is the millennial generation has it a lot more difficult than others.”
Why does homeownership seem so out of reach for this generation? In this article we discuss some of the most common challenges millennial homebuyers face and what they can do about it.
1. Struggles with student debt
One of the reasons things have been so much harder for millennials is that student debt has been an enormous burden for their generation, Boorstein says. He says the costs of college have risen nearly every year, and he regularly talks to millennials who are coming out of college with around $60,000 to $80,000 in debt. He’s seen pharmacy majors coming out with as much as $250,000 in student loan debt. “It’s just crazy,” Bornstein says. “They’re graduating with a mortgage, basically — their college debt is equivalent to a mortgage, so why would they want to take on a second mortgage?”
Boorstein has noticed that many millennials take longer than four years to graduate from undergrad and often get graduate degrees, which means a large number of them must pay for more than four years of school. “The debt they have is much different from when I graduated,” he says. “So I see that millennials aren’t ready to buy a house yet because they’re struggling to save for a down payment and pay off student loans at the same time.”
It’s no surprise that millennials aren’t prioritizing homebuying when it feels out of range, Boorstein says. “They’re getting married later because of the amount of debt they have; they’re not saving for their first house because they’re trying to pay down debt,” he explains.
2. Economic and demographic shifts
In addition to a huge debt burden, another common challenge facing millennial homebuyers is sluggish wage growth and a less certain job market.
“The job market for millennials isn’t nearly as good as it was for Baby Boomers or the beginning of Gen Xers,” Boorstein says. “They’re getting hired, but the jobs aren’t paying as much on an equivalent basis as they were 10 or 15 years ago.”
Boorstein says if you look at real wage growth over the past 10 or 15 years, it hasn’t been that much; meanwhile, college costs have steadily grown.
“So basically for the last decade or more, you’ve seen college costs have gone up at astronomical rates, and at the same time, real wage growth hasn’t been there, so you’re getting out and getting a job that’s equivalent to what it was 10 years ago, but yet your debt level is huge.” Not to mention, the cost of housing is rising across the nation. Altogether, this creates the perfect economic storm that makes buying a home out of reach for many millennials. “I think we’re seeing some type of demographic shift.” He says there are more multi-family homes being built, which sometimes appeal to millennials and other first-time buyers.
3. Not making home-buying a priority in their schedule
Homebuying is not only a major financial commitment — it’s a huge time commitment, too. “Young buyers are their own worst enemies,” observes Dana Bull, a Realtor with Harborside Sotheby’s International Realty in Boston and founder of Dana Bull Real Estate Coaching. The biggest hurdle she’s encountered with young buyers is that they’re not willing or able to make home buying a priority, often underestimating the amount of time it takes.
She says young buyers are in the building years of their life; they recently graduated school and they’re busy juggling their careers and working on getting their lives on track.
“It’s a skill that most people get better at with age; you have kids and you learn how to balance and multitask,” Bull says. “But I think for young people, buying a house is a really important thing, and they just can’t seem to be able to free up their schedule in order to respond to lenders on time, to meet deadlines, to schedule housing tours, and to do everything they need to do to put themselves in a position to buy. It’s so competitive out there that if you’re not able to make it a priority, someone else is, and they’re gonna beat you to the cake.”
Bull explains that many of these young consumers she encounters do seem genuinely interested in buying, but they underestimate how much time the process takes over the course of several months.
“You need to be committed and you really need to be the ringleader in it, and you can’t just rely on your realtor hounding you to do stuff,” she explains. “You want to be the driver behind the whole process. If you want to buy a house, you need to commit to it and you need to accept the fact that you’re going to have to make sacrifices schedule-wise in order to get it done.”
4. Not giving themselves enough time
Another challenge new or young buyers often face, Bull says, is they mistakenly tie themselves to an unrealistic timeline and put arbitrary deadlines on their moves, which can result in settling for a home they don’t really love.
“These deadlines are usually, ‘well, the kids are starting school in September, or our lease is up in September,’ so what happens during the spring and into the summer timeframe is this crazy housing shuffle,” she says. “It’s like a game of musical chairs. The music stops and you don’t want to be that buyer that’s looking around and says, ‘Where’s my seat?’”
She says buyers need to start earlier than they think and figure out a solution where they are not going to be in that position of having to settle. “If it’s negotiating with their landlord about how they can go month-to-month to give themselves a little bit more lead time, talking to their parents so maybe they can move in if need be just to tide things over, or find a short-term rental, or whatever it is so they’re not putting that stress to find the right place,” Bull says. “Because what can happen is you end up with a place you don’t love, but your lease is up, so you have to move.”
5. Unknowingly limiting themselves
Homes come in all ages, shapes, and sizes, but Bull she’s observed that millennials buyers often limit themselves to one type of property, creating unnecessary challenges for themselves.
“Developers that are building new construction homes have gotten really good at marketing, and we’re constantly bombarded with the same type of house,” she says. “You’ve seen it a million times. It’s the open concept, bright light kitchen, subway tiles, marble kitchen countertops, and stainless steel appliances. And everything kind of looks the same. I think it’s the overexposure to that one property type where we obsess over it and think it’s the be-all, end-all.”
Bull encourages buyers to weigh out all options and understand everything that’s available to them. She thinks buyers should look at condos, consider what it would be like to own a two-family home, and think about getting a fixer-upper instead of something already updated.
She says some young buyers often want to avoid fixer-uppers. But when she asks them if they consider their parents to be good homeowners, and they say yes, she reminds them that they’re just regular people too who bought a home, underwent renovations, and learned. “They realize their parents are regular people just like us, and they figured it out — they didn’t go buy a shiny turnkey property, they bought a fixer-upper.” That resonates with a lot of her younger buyers, she says, and makes it easier for them to enter the real estate market.
When looking for a home, Bull encourages buyers to figure out what their constraints are — it’s usually financial, she says, but it could be your commute or needing to be in a certain school district.
“So whatever are your top priorities, figure those out and put them in the middle, and then build around that,” Bull says. “Take the time to explore various neighborhoods; take the time to explore different housing types. I don’t see a lot of buyers do that — they just kind of narrow in on one thing and they feel like that’s it.”
6. Not always prioritizing the right things
Similar to limiting themselves to one housing type, Bull also sees this over-prioritization on design holding back would-be millennial buyers in other ways.
She says we’re a culture always in front of screens, and it’s easy to fall in love with Pinterest and Houzz — but it’s easy to forget that there’s a lot more to the homebuying process. “My design-savvy buyers spend a lot of time researching that aspect, and they don’t spend as much looking into things like how to shop for mortgages, what can a real estate agent do in your transaction and how can they help,” she observes.
Bull says it’s important to research all aspects of the homebuying process, not just the ones you’re most excited about. “Also, understanding that at some point, you do have to get out from behind the screen and you’ve got to talk to people,” she says. Once you get started, you’ll find a whole world of lenders, home inspectors, and other specialists and experts who can really help you make homebuying a reality.
Bull values doing online research — she herself writes articles about real estate for Zillow. “But the truth is, there’s only so much that you can get from reading an article,” she says. “You do have to do the leg work in real life.”
7. A long time to save for a down payment
For a lot of millennials, housing prices have gone up in the major U.S. cities where they work and live. So it can feel like any progress you make towards saving for a down payment is outweighed by home prices getting further out of reach. If you save up $5,000 in one year but home prices went up by $10,000 or $20,000 during that time, you feel that you’ve lost ground.
At the same time, rent payments have gone up in many of these cities, making it harder to carve out a few hundred dollars from the monthly budget to put into a down payment savings fund.
One option for those who are trying to speed up their down payment saving is to partner with a home ownership company like Unison. With the Unison HomeBuyer program, first time buyers (or anyone) can double their down payment funds, making it easier to buy a home faster. In exchange for making an investment in the home, Unison receives a share of the future change in value of the home.
Regardless of which programs you take advantage of, the important thing is to keep an open mindset and look for solutions. While there’s nothing millennials can do about the economic challenges they face, some of these hurdles can be overcome to make homeownership a reality.
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