Millennials are looking towards the suburbs, not cities for their first homes. The only problem is that no one is building a product that they want.
Everyone is constantly talking about millennial and what it is that they want, and conventional wisdom pegs millennials as terminal renters and emphasizes a lifetime urban residency, but the real estate market is slow moving and reactionary, but as millennials age and start families, the numbers tell a different story.
It’s true that homeownership among this age group has traditionally been lower than in previous generations. But that may be more a function of delayed purchases due to millennials’ new financial reality: historically high student debt, recession, rising real estate costs, a challenging and stratified job market.
Last year, millennials, the largest generation in American history, purchased 35 percent of homes sold in the U.S. Consider that the median age of the millennial generation is 25, and the average age of a first-time home buyer is 31, and it’s fair to say there’s a sizable wave of millennial homebuyers on its way.Realtors, urban planners, and home builders, not to mention city and local governments, have a lot riding on when, and where, this generation settles down. Predictions that this generation will permanently rent, or, if they do buy, will stay in cities forever, may have been premature.
“With few affordable options right in the city, millennials are moving to close-in neighborhoods and buying the oldest homes. They aren’t moving to the furthest suburbs with the newest and biggest homes, best schools or infrastructure. They’re living in the next closest place they can afford. The real estate industry is just fixated on the white-picket fence version of the American Dream, and the idea millennials will eventually get married, eventually buy a home, eventually have kids, and eventually move out to the suburbs. That’s a lot of eventuallys to depend on.”
And in their focus on potential futures, suburban towns and cities aren’t prepared for the realities and needs of the millennials who may arrive.
The millennial move to the suburbs has been predicted for years by the one group that everyone probably should have trusted in the first place: millennials themselves. In survey after survey, the percentage of young adults today who expect and want to own a home has been comparable to that of previous generations.
Millennials’ move to the suburbs to have a massive impact on housing trends even though this wave of buyers will have a lot of financial challenges to overcome. Both larger and more racially diverse than the baby boomers, and primed to continue to grow and diversify due to immigration, millennials are also downwardly mobile economically.
Money, and the chance to earn more of it, has been a primary driver for young adults’ moves to cities over the last decade. While there will always be many motivated by a preference for urban living, this generation’s shift toward cities, and longer stay downtown compared to previous generations, can be explained, in part, by the economy. The difficult economic landscape has made financing a home a challenge for this age group—according to research by the financial advisory site NerdWallet, a majority of millennial homebuyers don’t meet the median credit score of 750 to obtain loans backed by Fannie Mae, one of the biggest players in the industry, and a third don’t meet the minimum credit requirement of 620.
While there are plenty of cool urban infill projects and new designs that may cater to this group, they’re rarely affordable for a millennial looking for a starter home. Other big homebuilders have announced new products focused on younger, first-time buyers, but often, breaking new ground means locating homes farther and farther from core markets and urban areas.
“Millennials want walkability and convenience, they have a higher transit use propensity than those in the past, and they want to be within walking distance of shopping and dining. The problem with the existing suburban housing stock in America is that it just doesn’t provide that.”
With a smaller stock of affordable new starter homes, what’s a new family looking for a home to do? Some believe the solution may be renovation, especially in older suburbs closer to the urban core, which offer denser downtowns and transit connections to cities, but may have lost value over time as the population ages and attention moves elsewhere. It allows owners to reinvent housing stock that was left for dead, reinventing the neighborhoods as well. This shift toward renovation, in part, explains why Home Depot and Lowe’s, and any retailer that has to do with home improvement, maintenance and repair, are seeing profits soar).
Some suburban governments are helping to encourage this influx and taking progressive steps to be more attractive to new homeowners. Montgomery County, Maryland, on the fringe of the D.C. area, made headlines when it introduced a nightlife commission to help improve entertainment options.
After years of thinkpieces and trendspotting reports speculating about what millennials want and how they’re changing everything, it turns out they may be looking for the same things as the generations that preceded them.