Millennial Homeownership: Tips For A Changing Market

8 Min Read
Updated July 31, 2023
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Written By
Josephine Nesbit
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Millennials, the generation born between Gen X and Gen Z, are in their prime home buying years and are the driving force behind today’s buyer demand. Millennial home ownership rates have accelerated over the last several years, becoming the largest share of the new home buying population. With this surge in millennials buying homes, it’s important that younger generations are aware of common problems that might come up when buying a home.

Are Millennials Buying Homes?

There was a time when most Americans thought millennials would never buy a home. But as this generation gets older and we move into 2023, these predictions are being proven false.

Though the millennial home buying rate was delayed compared to earlier generations, millennials have been buying homes in large numbers. This has caused a major shift in the housing market, helping the real estate industry remain alive and well.

Historical trends show millennial home ownership rates are quickly on the rise, almost matching the share of Generation X and baby boomer home buyers. According to a recent report by the National Association of REALTORS® (NAR), millennial home buyers make up the largest share of the market at 43%, up from 37% the year before. Home buying demand is only expected to rise as the younger portion of the generation matures.

Millennials adjusting to new lives and career changes are attracted to low interest rates, more space, property ownership and the ability to grow their own wealth. Many millennials want a place to call their own, and don’t like the idea of living in a rental property for an extended period of time.

Yet, while many millennials are making big steps toward home ownership, other millennials feel barred from buying a home due to certain roadblocks faced by their generation.

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6 Challenges To Millennial Homeownership

The housing market isn’t the only reason most of millennials are having a hard time finding affordable housing and getting a mortgage. Here are some common barriers to millennial homeownership.

1. High Student Loan Debt

The last few years have shed light on the impact of inflation on tuition and the affordability of higher education. College has never been more expensive than it is today, and rising interest rates on student loans have pushed up the overall cost of borrowing. And in the midst of the current student debt crisis, there are a number of ways in which student loans could impact a millennial’s ability to get approved for a loan or buy a home.

On average, 83% of non-homeowners said that their student loan debt is preventing them from buying a house. This can affect a home buyer’s ability to save for a down payment on the house, meet monthly mortgage payments, and even qualify for a mortgage due to a higher debt-to-income ratio (DTI).

Student loans can impact a buyer’s DTI in multiple ways, whether they’re deferred or in repayment. Generally, most mortgage lenders want to see a DTI of 50% or less to qualify for a conventional loan. A high DTI and little or bad credit can affect millennial homeownership. So, you might consider paying off your student loans or looking into student loan relief to lower your DTI and build a better credit score.

2. Tough Home Affordability

Sticker shock is enough to turn any buyer away, especially when it comes to home buying. That’s why the lack of affordability of real estate – particularly the down payment on a property – can block a millennial from buying a home.

Since the beginning of the pandemic, the home-to-price income ratio is much higher than it was in earlier generations. When baby boomer home buyers turned 30 in 1985, the average single-family home cost $82,800. The average millennial who turned 30 in 2019 would have spent $313,000. However, if home prices increased at the same rate as inflation since 1970, then the median home price today would be $177,788 instead of $408,100.

A majority of millennials cannot afford a down payment in order to secure a home loan. If the typical millennial saved every penny of their disposable income, it would take 4 years to save enough for a 20% down payment for the median-priced home.

Unfortunately, affordability is not a problem that can be solved by saving money alone. So, before you get too excited about a house on the market, make sure you know just how expensive of a home you can afford, and stick to that budget.

3. Delayed Marriage

Many times, home buying involves other members of a family, such as a spouse and kids, but that’s not always the case. As millennials tend to stay single or get married later than other generations, some are skipping the family stage and moving right to independent homeownership. While there are a greater number of single homeowners, it has caused many millennials to delay their first home purchase.

To be clear, there’s nothing wrong with this. Nonetheless, being unmarried or single is often believed to be a barrier when it comes to someone’s ability to buy a home. However, you should never feel pressured by your marital status when buying a home as a millennial.

4. Expensive Rent

Another obstacle to millennial homeownership is that many millennials currently reside in pricey cities or live near them for social aspects or work opportunities. This leads to renting for longer periods of time.

While renting doesn’t prevent homeownership, rising rent prices make it more difficult to save money for a down payment on a home. Renters may be able to save money by extending their lease, if it’s affordable, or splitting a larger unit with a roommate.

5. Stricter Lending Standards

During periods of economic instability, banks tend to tighten their lending standards to reduce the risk of new home buyers defaulting on their loans. Mortgage credit availability, which measures a lender’s willingness to give out a home loan, dropped to its lowest level since 2013 this year.

While this can slow down the rate of millennial homeownership, this makes it even more important to come prepared when applying for a mortgage. Hopeful millennial home buyers should inquire about mortgage preapprovals and understand the difference between being preapproved and prequalified for a loan beforehand.

6. Bad Credit

Credit history and credit score can also impact a millennial’s ability to get approved for a loan or buy a home.

Because some millennials grew up with tough economic circumstances due to the Great Recession, they may be hesitant about making larger purchases. This is especially true when it involves going into debt. So, instead of using credit, millennials tend to pay for big-ticket items using their checking accounts to ensure they only purchase what they have the funds for.

In order to qualify for a mortgage, lenders need to see a credit history of responsible borrowing. Unfortunately, having little to no credit, in combination with a high DTI from outstanding student debt, can make it difficult for millennials to receive a home loan.

Although there are many challenges to millennial homeownership, there are ways for millennials to navigate the market no matter what they’re experiencing.

Tips For Millennial Home Buyers

As a millennial, there are steps you can take to put yourself in the best financial position and navigate the constantly changing housing market. Here are several things you can do before applying for a home loan. 

  • Pay off debt. Having a better debt-to-income ratio can help prospective buyers better prepare for monthly mortgage payments. Consider paying off your student loans, auto loans, credit cards or any other debt you might have. One easy way to manage your debt is with a monthly bill payment calendar. Keep track of what you already owe, and strategically add other debt payments onto your calendar so that everything can get paid off as efficiently as possible.
  • Build credit. Lenders evaluate creditworthiness to determine if potential borrowers might default on the loan. You can build your credit by opening a credit card account, making your credit card and other debt payments on time, and only charging items to your credit card that you know you have the funds to pay back. 
  • Save money for a down payment. Saving money is important when making the down payment and when making a stand-out offer on a property. Nonetheless, it’s important that millennials stay within their budget when house hunting and familiarize themselves with their down payment options before buying a home. 
  • Explore loan and lender options. Because there are so many different loan and lender options, it’s crucial that millennial home buyers conduct thorough research before making any final decisions. A mortgage preapproval can help you find the right option to suit your individual needs.
  • Research the housing market. Since the pandemic, the housing market has been unpredictable. Learning more about real estate market trends can help millennial home buyers better understand the home buying process and the reasoning behind some aspects of it.

The Bottom Line: Making Millennial Homeownership Achievable

The rising share of millennial home buyers shows that millennial homeownership is achievable. Many millennials are facing hardships in this current market, but young millennials can set themselves up for success and purchase a home without struggling.

Reach out to Home Loan Expert to learn more about home loans and get specific advice tailored directly to your own personal situation. You can also .

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