For many years, whether or not millennials would ever fully enter the home buying market has been a hot topic. Compared to previous generations, many millennials are still would-be first-time homebuyers. And, the housing market has long been awaiting their arrival.
Has the time finally come for millennials previously unable to do so to buy their first home? Homeownership represents a significant financial change, and the transition from renting to owning is a major milestone. Take a closer look at what to expect in the coming years.
On The Brink Of Home Ownership
In 2019, Chase Home Lending did a study that showed more than 50% of millennial homebuyers believed they were financially ready to enter the housing market.
Unlike previous generations, only 42% of millennials have purchased a home by the time that they are 30 years old. In comparison, 51% of boomers and 48% of Gen Xers bought homes by this age.
As more and more millennials cross over this milestone age, it is becoming apparent that more plan to buy homes. These desires, however, are not always matched by the market.
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With so few millennials owning homes compared to previous generations, many studies suggest that there may be pent-up demand hitting the market in coming years. Still, it’s hard to estimate the exact number of millennials that will move to buy homes in the next one or two years for a variety of reasons:
- The large gap in millennial wealth means that some are ready for homeownership. While others are still trapped in the renter cycle.
- Millennials are forming families at slower rates than previous generations, which often correlates to lower home-buying rates.
- Housing demand is skyrocketing in 2021 as the nation moves through the COVID-19 pandemic, leading to soaring prices.
Combining these factors makes it difficult to predict when a surge of millennial buyers may hit the market. The bottom line is that many intend to make this move as soon as possible. And when they do, the market may face an additional housing shortage. Finding homes that suit their goals and needs in a tight market may be difficult. And, it could further delay first-time buyers.
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The Mortgage Rate Advantage
One factor of the COVID-19 pandemic’s effect on the housing market that some millennials are taking advantage of is the impressive mortgage rates.
Mortgage rates are expected to continue to creep up throughout 2021. Still, millennials and other first-time homebuyers saw the lowest numbers in more than a decade in 2020 due to the ongoing pandemic. This inspired many to look at their finances and realize that buying a home might be possible thanks to the lower monthly payments afforded by a lower mortgage rate.
Rates will likely remain historically favorable throughout the year, and this is a big benefit for millennials looking to enter the housing market for the first time. By entering when the rates are in their favor to this degree, they can begin to inch their financial stability into a picture closer to what was seen for previous generations.
Though a mortgage rate change of just 0.5% on a $300,000 is less than a $100 difference on monthly payments, those payments add up over a year and over the lifetime of a mortgage. Taking advantage of these small differences gives millennials the chance to take the lead in a market that has been less than generous to them throughout their adult lifetimes.
These rates are heavily reliant on the entire country’s economy, so it’s impossible to predict precisely how they may or may not change. As the economy gradually recovers from the pandemic as the vaccine rolls out, most expect the rates to start climbing again. Millennials looking to move onto the market may want to move quickly to secure historic mortgage rates.
Cutting Back: How Millenials Will Enter The Housing Market
70% of first-time homebuyers expressed that they are willing to stick to a stricter budget to make their first home purchase happen. Many millennials are finally reaching the stage where they can save enough to make a down payment, but making monthly mortgage payments is still an important consideration. Interestingly, research shows that the national average down payment is about $62,000, though 61% of young people have less than $10,000 in savings.
As first-time homebuyers, many have not kept a strict budget in practice, so learning how to do this will be an important transitional process for their futures. Indeed, first time home buyers won’t need a fancy Italian architect for their new home. Often, being able to make monthly mortgage payments is as simple as employing an effective weekly budget. Employing the best personal finance tips across the board will make it easier to create and maintain a budget while making monthly mortgage payments.
Key changes to make may include updating phone plans, limiting expensive gifts and visits, and learning to grocery shop more effectively. While these changes may seem small, the long-term savings provide help to seriously improve your financial situation.