Millennials have seen their parents buy houses and start a life in their 20s. But most people from this generation are nowhere close to attaining that dream. Between 2018 and 2022, the percentage of millennials who expect to forever live in rented property rose from 13.3% to 24.7%.
There are several reasons behind why this particular demographic is not very enthusiastic or eager to become homeowners. In this article, we will first explore the reasons why millennials don’t find it feasible to buy property, and then move on to helpful strategies for those who want to.
Why Millennials Don’t Want to Buy Property
Delay in family and home milestones
A key motivation for buying a house is settling with one’s partner and starting a family. But historical data shows that since 1965, the number of people opting to marry is on a steady decline. There is a small spike in 2022 compared to the downward trend of 2020-21, but it’s nowhere close to the 90s.
As more and more Americans are marrying late, and some don’t even want to start a family. Also, the average age of marriage is increasing- people are marrying older. It probably also means that people are moving out of their parents’ home at a later age.
As a result, home ownership is delayed. Of course, this factor cannot be seen in isolation. There are reasons for why people are making these decisions. Rental rates and deposit amounts are also on the rise, and people probably see staying at home as a wiser decision.
Student debt
According to the Education Data Initiative, the average public university student borrows $32,637 to attain a bachelor’s degree. The outstanding federal loan balance, when it comes to student debt, is $1. 602 trillion, and accounts for about 92% of all student debt!
Clearly, millennials are still struggling to pay off their student loans. With so much money being taken out of their income, it’s not surprising that buying a home is not on their priority list.
High mortgage payments
Income levels are not really matching home values in the current real estate market. Fewer space and rising demand for it has led to skyrocketing real estate values. It is common knowledge that mortgage payments should not eat into more than 25% of your income.
Since income is not keeping up with these rising prices, millennials are increasingly discouraged from saving up for a home. To understand this better, we can take a look at the composite housing affordability index, which is published by the National Association of Realtors.
For a very long time, the US housing market had a score of 100 or more, which shows that buying houses was affordable. In 2006, it had a record value of 107.1 points, but in 2022 the value has plummeted to 103.8 points. Thus, due to rising mortgages, it’s becoming difficult for millennials to enter the real estate market.
Small-start investments: Start with what you have
Small-start investments are those that require a small initial amount. Such tools would be more suited to millennials, considering the financial obstacles that we just discussed.
Micro-flipping
Micro-flipping is a fast paced, non-committal investment process. You can think of it as real estate wholesaling. In this process, you buy a property that doesn’t require much renovation and repair. It is typically bought through online platforms. Then, within a span of a few hours to a week, it is sold to a prospective buyer for a higher price.
Sometimes, even before people buy a home, they keep prospective buyers ready who can buy it back from them. Traditionally, property owners emphasize on improving the value of the property through renovations and redesigning.
In case of micro flipping, there is no effort in that direction. Rather, more time is spent on data analysis to identify buyers and sellers. You end up doing a lot of trading, but the risk is low, and so are the returns.
House hacking: Reduce your housing expenses
Whether you are a tenant or a homeowner, the cost of housing is very high today. It usually takes a big chunk out anyone’s salary, especially if you are an entry level employee. House hacking is basically finding different ways of reducing your living expenses or making more money out of the space you live in.
For example, you could buy a multifamily unit, live in one unit yourself, and rent out the rest. Or you could build more housing units in your backyard or garage and rent them out. Some people even buy houses that are cheap because of all the repairs they need. Then they renovate the house and rent it out.
If all this sounds too much for you, there are also simpler alternatives, like just getting a roommate, or rent out your house for a few months when you are away for vacation. At the end of the day, as long as you are following zoning laws and the rules of the Homeowners’ Association, you can get as creative as you want with house hunting.
Leverage your millennial skills for real estate
There are many skills and tools available to newer generations, that can be a game changer for real estate investors. Here’s a few examples:
Property management software
There are online platforms that provide start-to-end property management services. If you are a property manager yourself, there are software and apps that simplify and automate tasks for you. For example, AirBnb is an easily accessible, convenient online platform that allows you to list your vacation rental and manage guest experiences.
Financial planning tools
There are plenty of online tools that will help you analyze your investment portfolio and make recommendations for future plans. These tools graphically represent information from various angles like economy, demographics, your income, and real estate trends.
If you are a millennial buyer interested in the real estate industry, we hope this article served as a good starting point for your research. Thorough assessment of your appetite for risk and available funds is a crucial first step before you start along this path. Stop, think, and invest!
