The threat of rising interest rates and higher home prices might not deter a pent-up market: first-time millennial homebuyers. Nearly two-thirds (65%) of adults ages 25 to 34 participating in a survey of Realtor.com visitors said they intend to buy a home within three months. That’s up from 54% of the site’s users responding to the same survey in January.
Jonathan Smoke, Realtor.com chief economist, says it’s a healthy sign for the housing market overall.
“This roughly translates to three-month demand for homes of approximately 1.2 million — significant but not out of line with historical levels of buying activity from this critical cohort,” Smoke tells NerdWallet. “According to NAR Buyer Profile data going back to 1981, 25- to 34-year-olds always represent the highest share of home purchases.”
One hurdle to clear — and it’s not what you might think
The biggest barrier to buying a home has traditionally been saving for a down payment. While it is on the list of hurdles to clear in the survey, it’s not the most significant factor. Around 40% of the respondents said they “have not yet found a house that meets their needs” — and that was the biggest obstacle holding them back from homeownership.
The poll also revealed other reasons why millennials have been slower to buy homes:
- They’ve had difficulty finding a house within their budget.
- They haven’t spent enough time house-hunting.
- They’re facing financial hurdles, such as a lack of credit or being tied to a lease.
“The stumbling block of finding a house that meets their needs is a function of available inventory,” Smoke says. “The second impediment more specifically addresses high prices/budget. Those are the top two issues for first-time buyers and are very close.”
First-time homebuyers need to prioritize
Should new homebuyers expect to give up certain home features or amenities to snag their first home?
“For some homebuyers, the size and design of their home is most important, while others might put a higher priority on proximity to work or transportation needs,” says Smitha Ramchandani, a Realtor in Morristown, New Jersey.
Ramchandani says it’s important for first-timers to prioritize their needs.
“Homebuyers should know what they absolutely need and what they want,” she says. “The two are different when it comes to the tough decision of buying a home. Flexibility is also important. What if you can get 80% of the items on your wish list? This is why it’s important to understand what is on your must-have list.”
She says first-time millennial homebuyers are looking for smaller homes and placing a higher emphasis on neighborhood and convenience — practicality over luxury.
“Millennials are telling me they want a short commute to work and access to public transportation,” Ramchandani says. “This generation is also not viewing their first home purchase as a place where they will live in 20 years. Surveys of millennials show they expect to live in this home for an average of 8 to 10 years.”
Is now a good time to buy?
But first-time homebuyers are bound to fret about whether it’s “the right time to buy.” Realtor.com’s Smoke leaves no doubt about how he feels.
“Absolutely!” Smoke says. “Assuming they can qualify for a mortgage and have the necessary funds for a down payment, the combination of rising home prices and higher interest rates as well as high and increasing rents as the alternative, means that the opportunity cost of not buying now is significant. We’ve estimated that delaying one year on average reduces the 30-year wealth creation of owning by more than $17,000.”
There are a lot of assumptions packed into the previous paragraph, but deciding when to buy is a decision involving a lot of moving parts — with at least five things to consider in the process. Making the right move is as much about when as where and how.
Image via iStock.