1 in 8 Millennials
For the first time in eight years, the Millennial age group is not the top age group purchasing homes. In 2022, that percentage shrunk from 43%, all the way down to 28% which leads us to one in eight millennials having to move home in 2022.
How We Got to 1 in 8 Millennials Moving Back Home
How did we get to this point for millennials? The genesis of it started back in 2008 when we had the housing crash. The housing crash created a supply of fewer homes over the next 12 years as builders went out of business and banks stopped lending money on new developments. As a result of that, we had new family formations but not enough housing in this country. During that 12-year period, we had a 6.5 million home deficit created in this country.
Fast forward to the COVID event in 2020, and what did that produce? Well, that produced a lot of fear and uncertainty so the Fed decided to lower interest rates. This increased the demand for housing but we didn't have enough supply. Prices continued to go up during this time frame. On top of that, the government decided that they were going to try to print their way out of this challenge, we had 40% of the US dollars printed during these 24 months. We have inflation, rising housing prices, and a lack of supply.
Fast forward to late 2022, now the Fed is raising interest rates. Higher interest rates along with higher prices, that's resulted in the housing affordability index here in Huntsville and across the nation going below 100. A housing affordability index below 100 means the average income can't afford the average home. That's where we sit for millennials, even millennials that have good-paying jobs. A lot of them are not able to afford the average price range home in this country so that's how we got to the situation where one in eight millennials moved back home in 2022.
Homeownership Rates in 2023
As a result of all these millennials moving back home, homeownership rates are actually the lowest they've been in over 50 years in this country, all the way down to 62.9%. The thing is, renters that are not buying homes and sitting on the sidelines, it's not that they don't want to purchase a home. A recent survey was done by 1000watt, and it showed that 95.5% of renters actually want to purchase a home. That's the situation that we're in right now. Millennials are moving back home, but that's not what they want to do. They want to get into homeownership and purchase their first home.
Advice for Millennials Looking to Buy Their First Home
Here's my advice for millennials wanting to buy their first home and build wealth through real estate.
1) It’s not your forever home. Stop watching HGTV because you don't have to have that dream kitchen and you don't have to be in the center of town. Look at low down payment loans such as FHA or even look at rural development loans such as USDA. USDA loans are 100% financing and they’re zero down payment. One of the things with that is you might have to buy a little bit further out of town which will lead to a little bit longer commute into work or into the gym and those types of things. These are great loans because it's no down payment and there is less competition typically in these rural areas.
The game of real estate is not buying your forever home your first time but getting into the home, starting to build equity, and then you trade up. You build that equity and use that equity as a down payment to to trade up in a home. As interest rates come down, that creates lower and more affordable payments as well.
2) Another great option for first-time homebuyers and millennials that we've been talking about in these videos is house hacking. One way to house hack is to buy a duplex or a three-bedroom home or a four-bedroom home and rent out one, two, or even three of those bedrooms. Take that cash flow to pay for your mortgage and save up your money. That allows you to live the lifestyle that you want to live, live in the area that you want to live in, and start to build equity and maybe even purchase another investment property as a result of it. House hacking is a great option for first-time homebuyers and millennials right now.
3) Another couple of things that I would recommend to millennials and first-time homebuyers. As you're starting to negotiate with sellers, find out what is important to the seller. You may not be in the best position financially, you may not be paying cash, and You may not be able to pay above the appraised value or some of these different things. Find out other things that may be important to the seller that you could negotiate for their benefit so that you get the home and maybe win out against another offer.
Some of these things might be: When does a seller need to move? Do they need flexibility on the move-out date because they are building a new home? Do they need a longer closing date? Find out what's important to the seller. You can do that by working with a great real estate agent and a real estate agent can work with the other agent and find out what's important to the seller.
4) One thing that can really benefit you from a cash flow perspective is asking a seller to pay a 2-1 Rate Buydown. A 2-1 Rate Buydown is where the interest rate is bought down 2% the first year and 1% the second year. So if rates were 6.5% today, that would mean that a 2% buy down would be 4.5% in your first year and then 1% down the second year which would be 5.5%. Then you get to year three and it's very likely that interest rates are going to be lower and that's where you would potentially refinance a home. Either way, you save a lot of money during those first couple of years.
5) The other thing that I'm recommending as well, is not necessarily for millennials, but for the parents of millennials. It's said that there's going to be a huge wealth transfer from boomers to millennials at some point in the future. You boomers out there that have benefited from higher stock market values and real estate values going up, is to go ahead and look at creating some gifting for your first-time homebuyer millennial now so they can go ahead and get in the game of real estate and start building wealth.
Posted by Matt Curtis
If you're a millennial looking to buy your first home or if you're a boomer that's looking to either sell or help create some equity transfer to your millennial children so that they can start building equity in their first home. Shoot us an email at email@example.com or contact us here.