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 home buying 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 home buyers 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 it their way, as usual.