Which Millennials are Buying Homes? What Could This Mean for Real Estate Investors?

Just about every major news outlet is talking about student debt, and the financial challenges facing Millennials (young adults aged roughly 23-34).

But fewer people are talking about another big economic trend regarding Millennials that could be significant for real estate investors. A relatively small percentage of Millennials are purchasing homes.

Parental Financial Support for Education and a Home Down Payment Factors into Millennial Home Ownership

According to a recent report by Zillow, based on the 2014 Survey of Household Economics and Decision making:

• 43% of Millennials who have a post-secondary degree (associates degree and up), and who received financial support from their parents, currently own homes.
• Among Millennials who own a home and received financial support from their parents for post-secondary education, 25% also received family support for funding their home down payment.

The Zillow research concludes that:

• 9% of all Millennials who received parental support for their education also received parental support to fund a home down payment.
• And overall, 3% of all Millennials received parental support for both education and buying a home.

So, what does this tell us about Millennial home buyers?

• Millennials are more likely to buy a home if they have a post-secondary degree, and received financial assistance from their parents for their post-secondary education.
• Of these, 9% will also receive parental financial support for the down payment on a home.

Why Aren’t More Millennials Buying Homes?

If you follow the logic of Zillow’s report, there’s a straightforward economic explanation for why more Millennials aren’t becoming first-time homeowners – they have too much debt.

According to this logic, there is a small number of Millennials fortunate to have parents who materially contributed to their post-secondary education, and also have the means and desire to financially contribute to a down payment on a home.

However, in a recent Forbe’s article, this logic may be flawed, due to other factors beside debt.

According to the article titled, “Student Loan Debt is Not Hurting America’s Housing Market,” author Chris Matthews notes that while there is a big correlation between students who graduate college with no debt and young adults purchasing homes for the first time, this link doesn’t hold up for students with less than average debt. Young adults with high debt burdens were only .8% less likely to be homeowners than young adults with smaller, below average levels of student loan debt.

Mathews points to a host of cultural issues to help explain why fewer Millennials are becoming first-time homeowners, and indeed there is a lot of merit in these “soft” factors.

• Millennials are waiting longer to get married, a life decision historically related to “settling down” and switching from renter to homeowner.
• More Millennials are attracted to cities than in past generations, and urban housing markets are especially hard to break into for young earners.
• Millennials came of age during the biggest housing market crash in U.S. history, and there may be some lingering fear and uncertainty in young adults about whether buying a home is even a smart idea.

But all of these soft factors don’t detract from the core implications of the Zillow report cited above. The amount of debt with which a student graduates may not have a huge effect on their propensity to become a homeowner; but on the other hand, debt-free graduates who don’t have to worry about debt can become homebuyers more easily.

This creates what an article in The Atlantic concludes is a “cycle,” and Zillow calls a “Funnel of Privilege.” The Millennials who can afford to buy homes due to family contributions to their education and down payments are more likely to buy a home when young. And by doing so, they are assuring their own financial well being in the long term and making it more likely that their children will have similar opportunities.

Do Millennials Really Not Want to Buy Homes?

The kind of cultural thinking Matthews describes in the Forbe’s article may lead us to believe that Millennials don’t want to become homeowners as prior generations. But, would this be a correct conclusion?

The Whitehouse notes that Millennials are buying homes at a lower rate than previous generations. But in a recent report from the National Association of Realtors, that’s not entirely their choice. The report found through polling that age wasn’t a very good indicator of a person’s attitude toward real estate. 72% of older respondents called home ownership a “smart and achievable goal,” compared to 69% of Millennial aged Americans. On the whole, the report illustrates a couple of important points.

First, Millennials want to buy homes. It’s a fallacy that the younger generation is inherently against homeownership. Second, and importantly, many Millennials don’t think they can afford homes. Whether due to real or perceived obstacles, Millennials simply don’t believe that homeownership is obtainable at this point in their lives.

What This All Means for the Housing Market

For the wider housing market, this means there could be less demand for occupant owned residential homes, at least in the short term. And, there could be more demand for tenant occupied rental homes.

The overall housing market may not be adversely affected one way or the other, because homes will be built, bought, and sold. But, investors may own the homes rather than occupants.

As a result, a shift toward more rental properties than owner occupied homes could result in a multi-generational opportunity for real estate investors. And indeed, it appears that this shift has already begun.

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