The FINANCIAL -- A growing share of homebuyers are millennials, and more of them are purchasing single-family homes outside of urban areas, according to the 2016 National Association of Realtors Home Buyer and Seller Generational Trends study, which evaluates the generational differences1 of recent home buyers and sellers. The survey additionally found that although student loan debt is more prevalent among millennial buyers, they aren’t the generation with the largest student debt balances.
The share of millennials buying in an urban or central city area decreased to 17 percent (21 percent a year ago) in this year’s survey, and fewer of them (10 percent) purchased a multifamily home compared to a year ago (15 percent). Overall, the majority of buyers in all generations continue to purchase a single-family home in a suburban area, and the younger the buyer, the older the home they purchased.
Lawrence Yun, NAR chief economist, says while millennials may choose to live in an urban area as renters, the survey reveals that most aren’t staying once they’re ready to buy. “The median age of a millennial homebuyer is 30 years old, which typically is the time in life where one settles down to marry and raise a family,” he said. “Even if an urban setting is where they’d like to buy their first home, the need for more space at an affordable price is for the most part pushing their search further out.”
Adds Yun, “Furthermore, limited inventory in millennials’ price range, minimal entry-level condo construction and affordability pressures make buying in the city extremely difficult for most young households.”
For the third straight year, the largest group of recent buyers were millennials, who composed 35 percent of all buyers (32 percent in 2014), more than the combined amount of younger and older boomers (31 percent). Generation X were 26 percent of buyers, and the Silent Generation made up 9 percent.
Financing the Purchase
This year’s survey underlined the challenges debt had on some buyers’ ability to purchase a home. While debt delayed saving for a down payment for a median of four years for all buyers, the number of years postponed increased from three years for millennials to six years for older boomers.
Among the share of buyers who said saving for a down payment was the most difficult task, millennials were most likely to cite student debt (53 percent) as the debt that delayed saving, while credit card debt was indicated more by Gen X (44 percent) and younger boomers (36 percent).
According to Yun, student debt is likely impacting more than just the millennial generation’s ability to buy a home. “Whether it’s from financing their own education or borrowed for their children, it’s somewhat surprising to see a higher median amount of student debt among Gen X ($28,000) and younger boomer buyers ($29,100) compared to millennials ($25,000),” adds Yun. “One of the many reasons housing supply has been subdued in recent years may be because a segment of homeowners have decided to delay trading up or moving down in order to pay down their debt, including from student loans.”
This year’s study found that 86 percent of all buyers in the past year financed their purchase (88 percent a year ago). Younger buyers who financed their home purchase most often relied on savings for their down payment, whereas older buyers were more likely to use proceeds from the sale of a primary residence.
Overall, the median downpayment ranged from 7 percent for millennial buyers to 21 percent for older boomers and the Silent Generation. Nearly a quarter (23 percent) of millennials cited a gift from a relative or friend – typically their parents – as a source of their down payment.
Characteristics of Buyers
The median income of millennial homebuyers in this year’s survey was $77,400 ($76,900 in 2014), and they typically bought a 1,720-square foot home costing $187,400 ($180,900 a year ago). The typical Gen X buyer was 42 years old, had a median income of $104,700 ($104,600 a year ago) and typically purchased the largest home compared to other generations (2,200-square feet), costing $263,200 ($250,000 last year).
Generation X buyers (71 percent) were the most likely to be married, younger boomers had the highest share of single female buyers (20 percent), and 12 percent of millennial buyers were an unmarried couple.
This year’s survey found that the millennial generation’s desire to own a home of their own as the primary reason for their purchase is increasing, up to 48 percent (39 percent a year ago). The desire for a larger home was the highest among Gen X buyers (16 percent), and older boomers (at 20 percent) were the most likely to buy because of retirement.
Searching for and Buying a Home
Nearly all buyers predominantly used the Internet and a real estate agent during the home search process. Eighty-seven percent of millennials and Gen X buyers used an agent, and they were also the most likely to use mobile or tablet applications and mobile or tablet search engines during their search. Gen X buyers were the most likely to visit an open house.
NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida, says buyers of all ages continue to seek the advice and guidance of Realtors®. “Supply shortages, strong competition and rising home prices in today’s market can make buying a home very stressful,” he said. “While the Internet is the initial go-to destination to search for available listings, consumers want the expertise and insights of a Realtor® to help them find the right home within their budget.”
Gen X buyers represented the largest share of single-family homebuyers at 89 percent (85 percent a year ago), and younger boomers were the most likely to purchase a townhouse or row house (9 percent). A combined 3 percent of millennial buyers bought an apartment, condo or duplex in a building with two or more units (7 percent a year ago).
Among the biggest factors influencing neighborhood choice, millennials were most influenced by the quality of the neighborhood (63 percent) and convenience to jobs (60 percent); convenience to schools was most desired by Gen X buyers, and proximity to friends and family by the Silent Generation.
Characteristics of Sellers
Those more likely to be trading up (Gen X homeowners) or trading down (older boomers) represented the largest share of sellers in the past year, at 25 percent and 24 percent, respectively. Millennials – also likely to be move-up buyers – stayed in their home the shortest amount of time before selling (five years).
Even though younger sellers were more likely to need a larger home or move because of job relocation, older boomers were far more likely to move further away. Sellers overall moved a median distance of 20 miles, with older boomers traveling the furthest at 75 miles.
Across every generation at 88 percent or above, sellers overwhelmingly used a real estate agent or broker to sell their home. When asked what sellers wanted most from their real estate agent, younger sellers were more likely to want their agent to help price their home competitively or sell within a specific timeframe, whereas help finding a buyer was desired more by younger and older boomers.
In July 2015, NAR mailed out a 128-question survey using a random sample weighted to be representative of sales on a geographic basis to 94,971 recent home buyers. The recent home buyers had to have purchased a primary residence home between July 2014 and June 2015. A total of 6,406 responses were received from primary residence buyers. After accounting for undeliverable questionnaires, the survey had an adjusted response rate of 6.7 percent. All information is characteristic of the 12-month period ending in June 2015 with the exception of income data, which are for 2014.