A lot has been made in recent years of millennials putting off home buying and electing to rent instead. Some argue it’s because they’re overburdened by student loans, or that they’re putting off marriage and children, or that they simply prefer renting – and the flexibility the that accompanies it – to owning a home.
It’s no secret that nearly everyone in the home building industry is waiting for the dam to break so that the flood of millennial buyers will start to flow. And some economists say that the time is approaching.
“We have found that millennials are very optimistic about homeownership and many of them do aspire to [own] one day,” said Svenja Gudell, chief economist of Zillow, during her address at the 2017 Zillow Economic Forum on Jan. 11 in Washington D.C.
She shared Zillow research in which 65% of millennials said owning a home is necessary to live the American Dream, which is more in line with the silent generation (64%) than baby boomers (57%).
But still, millennials aren’t purchasing homes in the same numbers as previous generations did just yet. According to Gudell, there are three impediments for millennials who’d like to buy a home. The first is getting together enough money for a down payment, which can be attributed to high rent prices and student loan debt that make it hard to save money.
The second is getting access to a mortgage for those who don’t have a conventional job or enough money in the bank.
The last impediment is also the biggest, Gudell said: A lack of available homes. “When you get out there and actually search for an available home to buy often times you’re out of luck because there are very few homes available on the market, especially if you’re looking for starter homes and entry-level types of homes across many markets in the U.S. right now,” she said. “So many first-time buyers are facing bidding wars, multiple offer situations, and that’s what’s making that buying process take a lot longer than it usually would.”
On the student debt front, Zillow research shows that in the long-term people with advanced degrees, and most likely bigger loans, are still more likely to own a home. “The problem kicks in if you went to school, spent a whole bunch of money on that schooling and didn’t achieve a degree along the way,” she said. “That’s when the likelihood of actually becoming a homeowner later on in life significantly decreases and leaves you out in the cold.”
Regardless, student loan debt does increase the time to home ownership, she notes.
Gudell also delved into the racial gap among homeowner – 71.9% of white Americans own homes, while 55.6% of Asians, 47.0% of Hispanics, and 41.3% of black Americans own.
When looking at the buying process, black people make up a disproportionately small number of mortgage applications. Black households make up 12% of the overall population, but only 3% of overall mortgage applications and only 2.6% of successful mortgage applications, Zillow research shows.
And while mortgage application denial rates are falling overall, black and Hispanic people are still denied at more than twice the rate of those submitted by white applicants.
“The more we study the data at Zillow…the more we see the myriad ways in which the American housing market looks substantially different depending on what you look like and where you live,” said Stan Humphires, chief analytics officer of Zillow Group.
