The U.S. has been celebrating a strong recovery in the housing market and solid growth in sales for the last two years. One area of disappointment has been the depressed level of first-time buyer activity. Since more than 60 percent of first-time buyers are millennials, this generation's plans and challenges are key to seeing first-time activity returning to normal.
Numerous factors have limited the millennials entry into home ownership so far.
Lack of economic opportunity through the recession and early years of the recovery.
Slower rate of household formation and a higher likelihood to live with their parents.
Very tight credit conditions to qualify for a mortgage.
High and ever-increasing rents taking a larger share of their income which restricts their ability to save for a down payment.
A small supply of homes for sale, especially in more affordable price points.
Millennials are critical to the future of U.S. housing and to the economy overall. They are the country's largest generation outnumbering baby boomers by 5 million, and have represented the largest share of homebuyers since mid-2012. Given their numbers and current ages, millennials will hold this position for at least the next 10 years.
Many inhibiting home buying factors with this generation have been slowly dissipating. On realtor.com, we are now seeing much larger numbers of first-time buyers planning to purchase in 2017. Here's what we know about the goals, preferences and reasons for buying for the critical 25-34 age segment – which has historically been the age range when most Americans buy their first home:
Reasons to Purchase
Life changes dominate the millennials reasons for buying a home. The top of the list are getting married or moving in with a partner and planning an increase to family size. Likewise, a similar share of older millennials also say that they are tired of their current home, having postponed making a move for long enough.
The top goals millennials hope to achieve by purchasing a home are taking care of their family's needs, improving their privacy and making a financial investment.
The millennial's leading home preferences are influenced by their family's needs. At the top is ensuring they find a safe neighborhood. Second, is finding a home with strong schools. Third, is having a larger yard with space for their family. Location preference varies for 25-34 year olds and is more mixed than with other ages. Millennials are more interested in urban areas compared to most other age segments, but those who want urban represent only 11 percent of millennial buyers. The top destination for millennials is the suburbs with "suburban closer to urban."
Millennials are also open to varied property types. Only 39 percent have stated preference for single-family homes. Various forms of attached property types account for 59 percent of their interest, with the most dominant attached property type being townhouses.
The most significant obstacles standing in the way for millennials to make a home purchase today are: time to get ready, having the necessary down payment and finding a home within their budget.
Nationally, ages 25-34 year olds are once again the most dominant group of home buyers. We estimate that this age group represents 34 percent of purchase mortgages year-to-date through August 2016. In Arizona, this age group has yet to rise to the same national percentages, but they are still the dominant share of purchase mortgages at 26 percent. Two sub-markets in Arizona are seeing an even higher share of 25-34 year olds this year. In both Flagstaff and Yuma, millennials have been responsible for 35 percent of purchase mortgages.
Arizona should see a solid growth in millennial home buyers in the years ahead as the share of the population becomes on par with the country – yet millennial participation in the housing market so far has been muted. Given the expected economic and population growth, in combination with relatively strong affordability in the state, the likelihood of a substantial increase in home sales to millennials in Arizona is significant.
Looking across the state, Avondale, Chandler, El Mirage, Gilbert, Phoenix, Tolleson and Tempe all show substantial promise for millennial home purchases in 2017. Realtor.com is seeing a sizeable amount of interest in these areas by 25-34 year olds – at the same time, these cities are in demand and have a high number of millennials who are already living there.