That’s the main takeaway from a new study by Clever Real Estate looking at Millennial home buying preferences in 2020.
But are they more or less likely than previous generations to buy a home? The answer to that question is more complicated. Compared to previous generations, Millennial home buyers are stressed, saddled with debt, and cash-strapped. More of these buyers would be much served by a company like Credit Karma, who could help them put their finances in order.
Of Millennials who plan to buy a home in the next year, a quarter has less than $1,000 in the bank. On top of that, 25% of prospective Millennial home buyers are carrying more than $10,000 in debt, but are looking to buy homes upwards of $200,000. And 70% of Millennials are planning on putting less than 20% down on their future home, which sets up a much more difficult financial future.
But wait - if they have no money in the bank and are carrying huge debts, where will they get even a small down payment? Not surprisingly, 48% of Millennials singled out raising money for a down payment as their #1 obstacle to homeownership. But it’s not stopping a lot of them; 27% of Millennials plan on borrowing money from family for their down payment, anticipating an average of $10,000.
Contrast that with only 14% of Baby Boomers thinking of borrowing their down payment, and only 19% of Gen Xers. Millennials are intent on owning homes, but they’re looking to older generations for help.
If simply reading that paragraph made you a little anxious, you’re not alone: 45% of Millennial home buyers are “stressed and anxious” at the thought of owning a home, compared to only 25% of Baby Boomers and 34% of Gen Xers. Millennials face severe obstacles to owning a home, and they know it. And that’s had a significant impact on what kinds of houses they’re looking at. Let’s unpack some of the preferences discovered by the survey.
Millennials Want Cheap Houses
This one’s somewhat of a no-brainer, but it bears looking at. Millennials have less money than previous generations, so they’re buying less expensive homes.
In 2020, the median U.S. home price is $310,000. Baby Boomers and Gen Xers are looking at houses costing around $240,000; Millennials are looking at much cheaper homes in the neighborhood of $210,000. With an ideal price point sitting at $100,000 less than the national median price, Millennials are hunting bargains.
Among this thrifty generation, there’s also a surprisingly large proportion of extreme bargain hunters. Almost 25% of Millennials hope to spend less than $100,000 on their new home. This number’s even more telling when you put it in the context of a year-to-year trend; in 2019, only 17% of Millennials were looking to buy a home with a five-figure price tag. This big one year bump suggests that Millennials are having trouble buying more expensive homes, and are adjusting their expectations downwards.
Millennials Don’t Need a Lot of Space
There’s been a trend towards smaller living spaces for a while now; there were probably as many think pieces about tiny houses over the past ten years as there were actual tiny houses sold. Millennial preferences reflect this trend, as these home buyers are looking at much smaller homes compared to previous generations.
Right now, Baby Boomers are looking to downsize to smaller homes for their retirement years, and they’re still looking at larger homes than Millennials. On average, Millennials are targeting homes that come in at a cozy, 1.700 square feet. For perspective, the average U.S. apartment is around 900 square feet, so we’re talking about an entire house that’s less than twice as big as the average apartment.
It makes sense that Millennials are gravitating towards smaller houses; if you’re looking for an inexpensive home, you’re also looking for a small one. Whether it’s working out for them is an entirely separate question; some recent polls have found that buying too small is a top regret of Millennial homeowners.
Millennials Are Looking to the Suburbs
Over the past couple of decades, the U.S. has seen a reversal of the suburban flight of the late 20th century, when affluent, highly educated citizens fled cities for the suburbs. In the 2010s, city centers became the hottest real estate, with buzzwords like ‘walkability’ and ‘village-style development’ being thrown around by developers and local governments. But as that tide crested, and cities became more and more expensive, many experts wondered if the suburbs were due for a renaissance.
It looks like Millennials might be kickstarting a suburban revival, and like many trends, it began as a matter of necessity. (The first people who moved to city centers, after all, didn’t move there because it was cool; they moved there because it was cheap.) Millennials are much more likely to buy homes outside major metro areas, where homes are dramatically less expensive than in urban centers.
The Dallas, Texas metro area is a great example. In Dallas proper, the median listing price is a pricey $379,000. So, where are Millennials buying? Twenty miles outside the city, in Garland, where the average list price is $224,250, or over 40% cheaper than in Dallas.
Millennials Are More Traditional Than You Think
When asked about their motivation for buying a home, the most popular Millennial response was the desire to start a family. This might seem more in line with something you might expect to hear from a Baby Boomer, but it also helps explain why Millennials are heading to the suburbs.
In keeping with this, Millennials also rank good neighborhoods and high-quality schools as their top priorities for the location of their future home, with 44% of Millennials choosing safe areas as their #1 priority, and 19% selecting good schools. While the stereotypical Millennial image is of someone who only cares about proximity to bars, coffee shops, restaurants, music venues, and bike-share stations, the reality is that Millennials are a lot more like their parents, or even their grandparents, than we ever suspected.
If you are selling, it is essential to know what a Millennial wants in a home.
Millennials Will Meet Sellers Halfway
Older buyers drive harder bargains, mostly because they can afford to. Millennials don’t have a lot of earning or bargaining power, so they have more relaxed standards when it comes to the finer points of home purchasing.
For instance, if interest rates were higher than 6%, only 17% of Baby Boomers would still consider buying a home. But many Millennials would shrug off the higher rate, with nearly half of them giving a mortgage at 6% interest a thumbs-up. Considering how much more you pay over the life of a loan at 6% compared to, say, 4%, this shows that Millennials are willing to pay a high price, literally, to own a home.
These generous standards extend to prospective locations, too. Exceptionally few Baby Boomers would be willing to pay more for a home near a waste management facility or a highway, with only 3% and 5% of Boomers, respectively, saying they’d find these locations acceptable. Not so with Millennials. Nearly a quarter of Millennials would be willing to pay more for homes in these potentially undesirable areas.
Millennials were also much more willing than other generations to consider lease-to-own and foreclosed properties. Basically, there’s very little that can dissuade a Millennial from a home purchase. However, they do have some deal-breakers.
Millennials Have Their Limits
Millennials will pay a high price to own a home, but they won’t pay any amount. 57% of Millennials say they wouldn’t buy a home with mold present, 55% said they’d pass on a house with a pest infestation, and 52% would be wary of a home with foundation issues.
These are the top deal breakers of both Gen X buyers and Baby Boomer buyers; the main difference between generations is that much lower percentages of Millennials consider these flaws to be deal-breaking. (For comparison, 74% of Boomers would nix a moldy home.)
The takeaway? Millennials hate cracked foundations, termites, and leaky roofs just like older generations, but they hate them a lot less. If you’re looking to offload an “as is” house, look for younger buyers.
Desperation Might Be Taking a Toll
More buyers are unambiguously better for the housing market, and in some sense, the market runs on enthusiasm. But Millennial zeal for homeownership might be creating an intragenerational backlash.
It’s well-established that many Millennial homeowners have regrets, and it’s not difficult to see why. Buying small homes in undesirable locations, at exorbitant interest rates, with no cash reserves on hand for unforeseen expenses, is a recipe for disaster. And we see the effects of these decisions unfold in real-time.
In 2019, 84% of Millennials thought homeownership was a vital part of the American dream, but in 2020, that percentage had nosedived to 70%. If discouraged Millennials continue giving up on homeownership, the resulting economic slowdown will affect Americans of every generation.
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About the author: The above article on are Millennials more or less likely than past generations to buy a house was written by Reuven Shechter. Reuven is a Marketing Analyst at Clever Real Estate, focusing on creating fantastic content that educates home buyers, sellers, and investors. Reuven has seven years of professional writing experience with his current focus in commercial and residential real estate. He’s currently based in St. Louis, MO.