Young people are rewriting the rules of consumer behavior: They are streaming music rather than buying albums; talking on FaceTime instead of the phone; and watching Netflix, not cable. But they are still buying homes.
The National Association of Realtors reports that people 36 years and younger make up the largest demographic of homebuyers. Its March report shows that they are not that different from other generations as they comb neighborhoods and lenders online, hire an agent referred to them, and plan to stay in their homes for 10 years. It seems they are not that nontraditional after all.
This report, and findings from the Urban Land Institute and UDR, dispel the stereotype that young people live at home well into their 30s before moving into a live-work loft over a hipster hangout. Only 8 percent of those between 31 and 36 years old share a roof with their parents, their survey found. And while they rent to start, they seek opportunities to buy, including foreclosures.
The leap to ownership comes at an opportune time. Mortgage rates make financing more affordable; Freddie Mac says the 2016 average rate of 3.65 percent was the lowest since the enterprise began tracking the numbers in 1971.
Buyers have better access to financing. They still need good credit for a mortgage, but federal programs have a lower minimum score, 620 vs. 753, the industry FICO average in April. Fannie Mae and Freddie Mac mortgages will purchase loans with a minimum down payment as low as 3 percent and the Federal Housing Authority has a program with 3.5 percent down.
And while sale prices are rising, so are rents, diminishing the argument that it is cheaper to do the latter. In Dallas, for example, rents hit a new high in April. House rents jumped 4.5 percent this year from 2016 levels, according to ATTOM Data. They are going up faster in suburban communities than urban centers, says Zillow.
So why rent when you can own? Despite all the talk of a new generation with new habits, people 36 and under still want to own. That interest grows as they marry, pay down education debts, and – this is not a surprise – think about where to raise a family.
What they are not doing is flocking to suburbs at the same speed as their parents. A National Association of Realtors study showed that younger people are choosing homes in part on how close they are to work and the opportunity to use public transportation instead of a car. Other considerations for younger buyers include the desirability of an urban lifestyle with proximity to trendy restaurants and bars and making sure popular food delivery services like Delivery Dudes will deliver to their potential new home.
No matter the lifestyle choice, the math holds true: Home appreciation has historically outpaced inflation by one-half to 1 percentage point per year; mortgage payments build equity; and ownership creates community.
At some point, and it may be later than sooner for today’s youngest generation with its larger education debts, people want to settle down and plan a quieter, more certain future. Home ownership is an integral part of that plan and always will be. The only variable will be when. Given current interest rates and programs that encourage buying, now is a great time to act.
Mike Pappas is President and CEO of The Keyes Company, an independently-owned and operated real estate firm since 1926. Keyes is the largest independently-owned real estate firm in Florida and a Top 25-ranked firm in the entire United States.