As a demographic cohort, Millennials (aka Generation Y) have
been confounding people for years. They simply don’t behave the way that people
expect them to. Their response to the homebuying process is no different.
In a recent article on Forbes’ “Millennial Money” blog, the Millennial approach to homebuying was
labeled “really weird”. And what makes
them so weird is a complex combination of economic and sociological factors
that no previous generation has faced.
Thanks to the insecure job market and unprecedented student
loan debt, Millennials (age early 20’s - early 30’s) have developed a rather
unromantic approach to buying real estate. Couples aren’t getting married, but
they are buying homes in cities. They aren’t putting down roots, instead fixing
up their new homes and then selling them within a year or two.
Yup, it’s weird. And it’s the shape of things to come.
Millennials represent the largest segment (32%) of homebuyers in America, and
that number will only grow in the coming years.
20-somethings are using their first homes to increase their
credit scores and build credibility with the bank – possibly offsetting the
ponderous effect of student loan debt. While they are cash poor (which makes
down payments a struggle), many Millennials are able to start their real estate
ventures with special programs that financial institutions have established for
first time buyers.
Financial advisors have some warnings though. While
investing in real estate is more exciting and tangible than contributing to a
401k, Millennials should exercise a level of risk management. Owning real
estate involves more fees and expenses – taxes, HOA fees, debt payments. Managing
savings and investing in life insurance to offset the debt risk is one
recommendation. A prenuptial agreement outlining the financial responsibilities
of two unmarried people owning real estate is another.
If this all sounds terribly pragmatic, it is. The
Millennials want the American Dream of owning a home. They’re just doing their
way, as usual.
