Millennials Are Ready to Buy Their First Homes, but Challenges Await…
According to the latest existing-home sales report by the National Association of Realtors®, first-time buyers in May represented 32% of all sales, up from 30% in April and 27% a year ago. On realtor.com®, we’ve been seeing record traffic all year, and among serious house hunters, the share of 25- to 34-year-olds—the upper reaches of the millennial generation—has substantially increased.
“This is the beginning of millennials now seriously getting into the home-buying market,” said Jonathan Smoke, our chief economist, during a panel discussion on Wednesday at the National Association of Real Estate Editors conference in Miami. The topic was “Mortgage Availability for Millennials and Other First-Time Buyers.”
“This age range historically is the critical time frame in which most people buy their first home,” Smoke said after analyzing a survey of more than 12,000 site visitors from Jan. 1 through June 15. “Even last year, when the first-time buyer segment was depressed, 25- to 34-year-olds still represented the largest single age demographic of buyers.”
In January this year, about 54% of these older millennials said they were planning to buy a home within three months. By mid-June, that figure was 65%. In addition, older millennials and first-time buyers are more optimistic than the average buyer, saying that they are “very likely to purchase within the next 12 months.”
But these buyers are more likely than typical buyers to struggle to find a good house within their budget, to gather funds for a down payment, and to improve their credit score.
Struggling to qualify for a mortgage
For example, only 3% of prospective buyers report that difficulty qualifying for a mortgage is an impediment, but 65% of them are under 45. Smoke did an in-depth analysis of these buyers with mortgage difficulties.
“It’s not just millennials, but also young Generation Xers,” he told the audience in Miami.
Would-be buyers who report that they’re having a hard time getting a mortgage are 60% more likely to be first-timers. They have been trying to buy for quite some time—probably because they haven’t been able to qualify for a loan. In fact, 25% report that they started looking to buy more than a year ago, which is 50% higher than the typical buyer.
Here are the key impediments that they face:
- 60% cite needing to improve their credit score, the No. 1 issue for this type of buyer; that rate is almost 7 times that of the typical buyer.
- 52% cite lacking funds for a down payment.
- 39% say they cannot find a good house in their budget.
- 15% cite being on a lease, which is 2.5 times that of the typical buyer.
Despite the challenges, these would-be buyers clearly aren’t giving up—they are 85% more likely to say that they plan to buy even if it takes a year or more