Only 32 percent of millennials owned a home in 2015, according to a 2018 Millennial Homeownership Report from the Urban Institute. However, that might change in 2019.
While interest rates are rising, housing prices are expected to stabilize, offering additional affordable options to first-time homebuyers. Plus, mortgage lenders are experimenting with new ways to check creditworthiness and streamline the application process.
When it comes to whether the climate is favorable to millennials entering the housing market, Leo Loomie, senior vice president of client development for mortgage solutions provider Digital Risk, suggests "there are more tailwinds than headwinds going into 2019."
However, millennials still like the flexibility of renting, so the reality of a wave of millennial homebuyers in the coming year is no sure thing. While millennials may be able to get mortgages in the coming year, the appeal of being able to move at will may win out over the prospect of homeownership.
Why millennials wait to buy homes. The entrance of millennials into the housing market has been delayed by a number of factors, including student loans, limited savings and mobile lifestyles.
"They often are paying off other loans, making it tougher to save the cash required for a down payment," says Steven Gottlieb of Warburg Realty in New York City. However, he adds that money isn't what seems to hold back many of the young adults he encounters in New York. Instead, they are hesitant to commit to a long-term living arrangement. "Millennials change jobs more often than previous generations, and thus are less likely to want to be tied down to a neighborhood or even a particular city."
What's more, delayed homeownership may be a natural consequence of millennials holding off on other rites of passage. "Homebuying is often linked to life events like getting married or having a baby, both of which are happening later in life, and many people are choosing not to take these steps at all," says Tendayi Kapfidze, chief economist at online loan marketplace LendingTree.
In fact, the percentage of married millennials tracks closely to the number of young adults buying homes. The Urban Institute found 37 percent of 25- to 34-year-olds were homeowners in 2015, and the Pew Research Center found an identical percentage of millennials were married in 2017.
Making millennial homeownership possible. Kathy Cummings, senior vice president of homeownership solutions and affordable housing programs at Bank of America, says millennials have misconceptions about homebuying that can keep them out of the market. For instance, nearly half of 2,000 adults surveyed by Bank of America in 2018 believed a 20 percent down payment is necessary to buy a house. Instead, many properties can be purchased with only 3 percent down, Cummings says.
Credit scores are another factor that can discourage millennials from buying a home. Of the 685 millennials responding to the 2018 TD Bank Buy or Rent Survey, 17 percent said they didn't think they would be approved because of their credit.
The average credit score for millennial homebuyers in the nation's 50 largest metro areas is 656, according to a 2018 analysis by LendingTree. Cummings says most institutions use 680 as the cutoff for what they consider good credit, although applicants with credit scores as low as 580 may be eligible for mortgages.
However, the launch of the UltraFICO Score later this year could be a game-changer for millennials with low scores because of a limited credit history, Loomie says. The credit scoring model will allow mortgage applicants who don't initially qualify for a loan to opt into having bank account data used to further gauge their creditworthiness. UltraFICO offers a revised score based on factors such as average account balance and automatic deposits from payroll or other sources. According to FICO, 70 percent of those with at least $400 in the bank and no negative balances in the past three months should see their score improve.
"It's a very interesting way to assess someone's financial responsibility," Loomie says. Since the program is only in the pilot phase, it remains to be seen how much of an impact it will have on millennial homebuyers. However, Loomie says UltraFICO could potentially bump up credit scores by 20 points.
Changes in mortgage rates may cause homebuyers and sellers to hesitate about jumping into the market, while renters benefit from higher homeownership rates.
Young buyers need affordable housing. Even if millennials are able to qualify for a mortgage, they may have trouble finding a property within their budget. "The key challenge recently is affordability," Kapfidze says. "Six years of rapid home price increases and higher interest rates over the past two years are making it more challenging for all types of homebuyers."
As a result, access to housing may vary significantly throughout the country. "We've seen a lot of millennial homeownership in markets like Detroit, Minneapolis and Charlotte (North Carolina)," Cummings says. However, young homebuyers are priced out of many properties in urban areas such as San Francisco and New York City.
While interest rates are climbing, that may not be a significant obstacle when taken in context of historical rates. "In the '80s, mortgage rates were 18 to 20 percent," Loomie explains.
Millennials still want flexibility. Ultimately, the question of whether millennials will embrace homeownership in 2019 may boil down to whether young Americans are ready to settle down and pour their money into a single asset.
"Many millennials I work with in New York City would rather rent, thus keeping more capital freed up for other investments," Gottlieb says. Plus, they aren't convinced they will want to live in one place for five years, let alone 30 years. "The world is smaller for them, and moving to another city for a new job is not as daunting as (it was) for previous generations," Gottlieb explains.
With low down payment options, more affordable housing and alternative credit scores, homeownership will likely be within the grasp of many millennials in 2019. But don't count on them relinquishing their freedom to grab hold of it.
Browse for homes – and maybe even close a deal.
The days of picking up a real estate book at your local grocery store are long gone, and house hunting apps are growing in number and sophistication. As the online real estate marketing industry becomes increasingly competitive, mobile tools are getting better at helping consumers find accurate housing information. Check out some of the most popular and helpful apps to use when searching for your next house.
Updated on Dec. 12, 2018: This slideshow was originally published on Dec. 9, 2015, and has been updated with new information.Zillow: Houses for Sale & Rent
Zillow: Houses for Sale & Rent
(Courtesy of Zillow)
The most downloaded real estate app for both Apple and Android phones, Zillow’s app includes an interactive map and home value estimate that are signature features offered by the brand. With more than 100 million homes in its database, Zillow's app is the most popular method by far. In fact, Zillow reports that more than two-thirds of its usage takes place on a mobile device, jumping to more than three-quarters of traffic on weekends.
Pro: The app’s dashboard includes a Your Home tab that allows you to store your property’s information and see how its value estimate changes over time.
Con: As much as you may want it to be, the Zillow Zestimate isn’t a guarantee of what your home will sell for.Realtor.com Real Estate Search
Realtor.com Real Estate Search
(Courtesy of Realtor.com)
Filters on the search function in the Realtor.com app allow you to include some of the more specific details on your must-have list, such as multiple floors, fireplace, central air and even community swimming pools or security features.
Pro: With the Sign Snap feature, you can take a photo of a real estate sign you see in a neighborhood and get details about the property right away.
Con: The more specific filters rely on listing agents using all the right keywords, so if you’re struggling to find everything you want in a house, you may have to widen your search and keep an eye out for the details you want in listing photos.Trulia
(Courtesy of Trulia)
Another of the most downloaded offerings, Trulia's app gives users the desktop site experience in a mobile platform, with a focus on design that makes it easy to use for everyone.
Pros: On each property profile, Trulia lists local legal protections, noting whether there is legislation in the area to protect against discrimination for gender identity or sexual orientation in employment, housing or public accommodations.
Cons: On any property profile, you’re prompted to call or email an agent about the property. While this is convenient if you’re serious about buying but don’t have an agent, it can get in the way if you’re just browsing.Redfin Real Estate
Redfin Real Estate
Since Redfin utilizes an out-of-the-box business model with agents and professionals specializing in different steps of the process, the company's app serves as a way for users and Redfin agents to communicate. In addition to indicating which properties are listed by Redfin or another broker, the map feature will also note homes that are likely to sell fast through its Hot Homes feature.
Pro: You can schedule a tour with a Redfin agent directly through the app. The app even lists the next available tour time, so if you’re crunched for time, you know what’s available.
Con: If you don’t live in one of the 80 markets Redfin has agents located in, the app simply serves as available listing information.Homesnap Real Estate & Rentals
Homesnap Real Estate & Rentals
(Courtesy of Homesnap)
Homesnap gives house hunters the reins on its app, especially with its signature feature where you can take a photo of a home and the app will identify the property and provide details about it from the local multiple listing service or public records.
Pro: The start of each property profile includes a property history, including previous sale prices and when it last went on market.
Con: The property details come in list form, which you can expand to see everything from the architectural style to number of bathrooms to homeowners association fees. The amount of information is helpful, but the long list can make it easy to lose focus and miss key criteria you’re looking for.Homes.com For Sale & Rent
Homes.com For Sale & Rent
(Courtesy of Homes.com)
Through the Homes.com app, you have multiple options for searching based on your needs and desires, including buying versus renting, home value information for properties on the market and what neighborhoods work based on your preferred commute time.
Pro: Sometimes you just want to see what houses are for sale in a completely different city – and Homes.com gets that. When you open the app, it asks where you want to search, with the option to search based on your location, where the weather is nice or even a random destination.
Con: While the app offers property profiles with ads to get prequalified for a mortgage, which may be helpful to some, mortgages are best shopped for separately.Estately Real Estate
Estately Real Estate
Estately markets itself as a service that's focused on connecting consumers with the right local real estate agent, and its app follows that mission with multiple ways to get in touch with agents, whether it’s scheduling a showing or reaching out to Estately-affiliated agents listed at the bottom of property information.
Pro: The app has icons on the property profiles for information on taxes, utilities, appliances, schools and more regarding the property, making it easy to look at the details you consider most important without having to scroll.
Con: Estately only covers markets in 39 states, and while the most populous places are taken care of, residents looking for homes in Iowa, Kentucky or Maine, among others, are out of luck.Century 21 Local
Century 21 Local
(Courtesy of Century 21)
As a longstanding national brokerage, Century 21 is in the app game by providing consumers with access to home listing information pulled from local multiple listing services. The tool can particularly come in handy if you plan to use a Century 21 agent, as that’s who you’re put in touch with if you would like to inquire more about a property.
Pro: If you start searching for homes in a different city, information about the local Century 21 brokerage you should contact changes accordingly.
Con: Photos and property information load slower than many other house hunting apps.Read More
With more than a decade of reporting experience, Ms. LaPonsie’s work has been featured on MSN, CBS MoneyWatch, Yahoo Finance, NerdWallet and numerous other sites on the web. She has been a guest of Consumer Talk with Michael Finney and The Steve Pomeranz Show.
A native of Michigan, Ms. LaPonsie received her bachelor’s degree from Western Michigan University. You can follow her on Twitter or connect with her on LinkedIn.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.