4 Trends Affecting Millennials and Homeownership

If you’re under the age of 35, everything you know about owning a home could be wrong; but it’s not your fault. Parents of millennial children have taught them what was financially sound when they were the same age — go to college, get married, buy a home and have children; the formula for the American dream.

The American Dream is still real for many, but the details are murkier in 2016. The rising costs of college tuition are making it a riskier investment, young people are marrying later and having fewer kids and the appeal of buying over renting is now less obvious than it was for their parents. Blaming the shift on “a changing economy” is a cop-out, as the trends in millennial home ownership are just as cultural as they are economical. Here are some of the reasons why the nation’s youngest buyers are having an affect on the housing market:

1. Millennials Love Mobility

Economists are calling millennials the “job-hopping generation,” because they are more likely than previous generations to frequently change jobs, even if it requires moving. As unions are in decline and pensions are shrinking, job loyalty is on the fall and millennial workers are free to take their 401(k) accounts elsewhere. Because the next job, and next city, is always on the horizon, more millennials are opting for short-term apartment leases, which allow for freedom of mobility.

2. Millennials Love Cities

Millennials are more likely to buy their first home in the suburbs, not the city. Even outside of price-inflated cities like New York and San Francisco, urban housing costs are skyrocketing and forcing new homeowners outside the city limits. However, renting — still on the rise — is more manageable and gives young people the option to keep living in the city.

3. Millennials Love Incentives

The 2008 recession was a tragedy for homeowners who bought under inflated prices, but a silver lining for anyone buying after the fact. To help boost the economy and the new housing market, the IRS offered a hefty tax credit to first-time buyers until 2011. Just like a tax credit for electric cars, this was just the bump young people needed to buy homes after the biggest recession in nearly 70 years.

But now that the Federal Reserve is expected to raise interest rates for the first time since the recession, that boost in young home ownership could see a sharp turn in the other direction.

4. Millennials Do Not Love Student Loans

Perhaps the biggest hurdle standing in the way of homeownership, student loans account for the largest debt in the United States and are especially harsh on younger people. The more you owe in student loans, the less likely you are to buy a house. However, some programs like Income Based Repayment (IBR), which allows graduates to pay a lower monthly amount until the balance is forgiven in 20 years (10 for public sector workers), is helping ease this burden.

However, now that taxpayers could be on the hook for $108 billion in student loan relief, the future of this program could be in question under the new presidential administration. But if interest rates do go up and IBR is eliminated, the rate of buying from America’s 20- and 30-somethings could go downhill fast.

WRITTEN BY REALTY TIMES STAFF

Saving For Homeownership

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“My landlord just raised my rent $50,” says the exasperated apartment-renter over lunch with her colleagues. “I’d love to buy a home, but I don’t think I’ll ever be able to afford one. That’s just a privilege for rich people, I guess.” While the three co-workers dig into their wallets to pay their bill, the exasperated renter notices that she spilled pesto on her Versace-dry-clean-only suit. Anticipating another bill at the dry cleaner’s, she finishes off her wine and dessert, then heads back to the office in her shiny new sedan.

See anything ironic here?

Many renters bemoaning their fate may actually be able to afford a home — if they can start exercising some discipline with their finances, something this exasperated renter obviously hasn’t learned. The very activity in which she’s engaging here — a lunch out with colleagues — certainly isn’t something we have to deny ourselves. But is a four-star restaurant necessary? And more important, is it necessary every day? Some of us do just that — dining like royalty with appetizers, entrees, wine and dessert — and then complain when our finances are looking a bit low at the end of the month.

It’s easy to remain on automatic pilot in our daily lives and fail to notice how much money we actually spend wastefully. This isn’t going to be a lecture on the virtues of frugal living or self-denial, but if homeownership is a goal about which you’re serious, you’ve also got to get serious about cutting corners wherever you can find them. And the above-described scenario is a perfect example.

The following suggestions can help you save money without denying yourself of fun for the sake of homeownership. Getting started, ask yourself how you pay for things. Cash? Credit cards? Checks? There’s certainly merit in paying cash because you’re immediately held accountable for your spending, and you don’t face a bill later. But cash can be sneaky. You withdraw it from your checking account, and the next thing you know, it’s gone. For what did you use it? Can’t remember? That’s a common problem, and one that you need to correct. It’s fine to use cash, but keep a record of your spending. Too much trouble? Just keep all of your receipts in one place, and at the end of each month, look through the stack to refresh your memory about just how you spent your earnings over the past four weeks.

It practically goes without saying that you’ve got to keep those credit-card expenditures — and number of credit cards, for that matter — to a minimum. Choose one major credit card, and leave it at that. If you choose to pay for everything with your card in order to receive frequent-flier miles, that’s fine. Just keep track of your spending and realize that what doesn’t hurt now will hurt even more later when the bill arrives. Many check-writers don’t bother to keep up with their checkbooks. Balancing that checkbook is a worthy goal, sure, but how many people are faithful to that practice? If nothing else, record every single expenditure you make. Be aware of your balance.

Getting back to the subject of eating out, in some cities, restaurants are the main focus of social life. People are eating out more than ever, and restaurants are more than happy to accommodate them. But it might surprise you to learn that if you spend $10 (an average figure) on lunch every weekday, that adds up to $2,400 each year. Staggering, isn’t it? And $10 is low-balling it for many people; some of us spend $20 or more on lunch. And we’re not even touching on the subject of happy hours and dinners. Just as many of us pick up dinner on the way home every single night. What about that daily cup of nonfat half-caf extra-hot mocha with nutmeg at that frou-frou coffee house next to your office? That addiction is draining your savings, as well. Before you wave off that $3 daily treat, sit down and add it up over the course of a year.

Entertainment, too, is a savings-drainer. The price of movie tickets has risen to an all-time high — about $9 or more in some cities. Cover charges, nifty electronic gadgets for your home, clothes you can’t live without but that remain in your closet with the tags still attached, upgrades to your computer, a bigger TV set or stereo, a nicer car with more extras, the pricey gifts you feel obligated to buy friends to express how much they mean to you … all of this is contributing to your money shortage.

So do you have to lock yourself in your apartment, subject yourself to your own cooking and whatever’s playing on “Must See TV”? The answer is a definite no. For starters, cut that daily eat-out habit to twice or even once a week (celebrate each Friday with co-workers, and all of a sudden you’ll be looking forward to that lunch out instead of heading to yet another restaurant). No four-star restaurants, at least not as long as homeownership is your objective. No drive-throughs, either — just something middle-of-road, budget-wise. Cut that coffee habit to once weekly (each Monday morning to get you jump-started, for example). Learn to brown bag-it, and yes, you do have time. Take your lunch outside, and it won’t be long before you’ll influence others at work to do the same. You’ll be saving money and traffic-induced stress. After all, how much fun is it to go out and check your watch complusively throughout the entire meal?

Stick to matinees, keep those happy hours either to once per week (or consume less), and when it comes to clothing expenditures, stay away from clothing stores unless there’s a sale in progress. The easiest way to avoid temptation is to avoid walking in the door. If you’re ever contemplating a big purchase, try this trick: Carry it around the store while you continue to browse. Give yourself a while to “cool off,” so to speak. After a 20 minutes to half an hour, that item may have lost its appeal. As far as electronic items, steer clear of them for the time being, and keep reminding yourself that you’d rather own a home than a stereo with CD changer.

If you haven’t opened a savings account, do it now. If you can arrange it, have a portion of each paycheck electronically deposited into your savings account (out of sight, out of mind). You should already use direct deposit if you have access to this feature. Cashing your paychecks is a bad idea if overspending is a problem for you.

Need incentive to keep saving? Read the real estate section of your newspaper. Tour open houses. Start determining what your price range is and how much you’ll need for a down payment (it’s usually about 10 percent of the asking price). While you’re saving money, remember to save for your closing costs, which are usually a minimum 3 percent. If you’re having difficulty determining how much you need to save and what your price range is, consult a Realtor or a lending agency. They can help make your goal definable … and only you can make it attainable. It’s true that homeownership will be exponentially more satisfying than a four-star meal or a CD changer. With that in mind, a little self-sacrifice suddenly doesn’t seem that difficult anymore.

Written by Courtney Ronan

Are You Ready for Homeownership?

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The decision to pursue homeownership may be based on many factors: everything from a friend’s decision to purchase a home or a family member’s advice against “throwing your money away on rent” to your bad experience with a landlord or the noisy neighbors sharing your wall. While all of those scenarios (minus peer pressure, of course) may inspire valid arguments for considering the purchase of a home, how do you determine if you’re genuinely ready to join the ranks of homeowners? After all, it’s hardly a decision to be taken lightly. If you’ve spent your life as an apartment-renter or a condo-dweller, you’ve never had a yard to maintain. Even more significant, you’ve never moved into a home without the appliances — a refrigerator, washer and dryer, and microwave, for example — you’ve taken for granted as a renter. All of those appliances represent immediate expenses you’ll face upon move-in — and that’s precisely the time when you’re already feeling financially drained.

So is there any definitive way of knowing whether or not you’re ready for homeownership? Yes, to an extent. You can ask yourself a series of questions, and based on your answers, you’ll have a fairly strong indication of whether or not you’re ready to commit to what’s sure to be one of the biggest financial commitments you’ll make in your lifetime. Ask yourself the following questions, and jot down your immediate response (don’t ponder the answer you think the model homeowner would provide). Go with your instincts.

 

  • Why do you want to purchase a home? If it’s because your best friend just purchased a home and is constantly gushing about her new garden, extra living space and great neighbors, don’t get caught up in her excitement. Remind yourself that committing to homeownership means facing expenses you probably can’t even comprehend at the moment. It also means ongoing maintenance. The bottom line is that homeownership is an lifetime commitment that can’t be decided overnight.
  • How long have you wanted to be a homeowner? Were you content being a renter until some recent event or thought triggered thoughts of homeownership?
  • Do you think your quality of life will improve if you own a home? How?
  • In what terms do you associate homeownership? Does it represent in your mind an important step toward “becoming settled”? Do you view homeownership — the act of putting down roots — as a necessary milestone that you must cross in order to be taken seriously? Or do you view homeownership merely as a smart investment that can pay large dividends later if and when you decide to sell? If you’re thinking of homeownership solely as a means of putting down roots, you could become so wrapped up in this emotional decision that you overlook the practical factors every prospective homeowner should consider: the quality of the surrounding neighborhood, the resale value of the other homes on the block, the quality of the local schools, and the quality of your prospective home’s construction, among other criteria. You may also fail to consider whether or not the market is favorable for buying a home right now. It may be in your best interests to wait.
  • On the other hand, if the market conditions are good for considering the purchase of a home right now, are you feeling pressured to buy? Renters who live in hot real estate markets sometimes feel as if they should hurry up and buy homes before prices become too high. But if your instincts are telling you that this really isn’t the best time for you to make this commitment, it’s best to avoid jumping into homeownership at the present time. Instead, consider waiting until the market cools down slightly. Remind yourself that this isn’t the only time your local market will be hot; you’ll probably witness an upswing again in the near future. Or you may even consider another neighborhood that lies outside of the “red-hot,” high-priced region.
  • Are you happy with your present job? Are you confident that you’ll remain with your current employer for a lengthy period — so confident that you’re ready to put down stakes and commit to staying in the area for several more years? If that’s the case, it may indeed be a smart investment to purchase a home located close to your place of work. And if you work long hours, the closer you move to the office, the better your quality of life. You’ll also save considerable amounts of money on gas.
  • Are the local schools noted for their academic quality? Even if you don’t have children, it’s smart to consider this factor because it will affect your home’s resale value. If you do have children, how close are schools to your prospective new home? Will you save time shuttling the kids back and forth, allowing you to spend more time with them at home? If so, this is an excellent reason for considering homeownership.
  • Are you ready to assume the responsibility of home maintenance, including everything from appliances to yardwork and plumbing? Remember that you’ll have to factor these inevitable expenses into your annual budget. How much you’ll need to budget will depend, of course, on the age of your home, the general condition of the home upon move-in, and most important, how attentive you are to its ongoing maintenance needs. If you turn a blind eye toward those little signs that something is wrong, and you wait until something catastrophic happens, you’ll be facing expenses far greater than you could imagine — or afford.If, after answering these questions honestly, you’re still feeling trepidation, you should by all means listen to your instincts. Homeownership does, indeed, represent one of the most significant milestones of our lives. When you sign on the dotted line and commit to this major investment, you should feel confident in your decision and look forward to what lies ahead. Your choices have never been more numerous or more varied than they are in today’s real estate market. You have all the time in the world to make your decision, so make it slowly, deliberately and intelligently — so that when the time is right, you’ll know it.

 

 

Written by Courtney Ronan