Home buyers face challenges in today's housing markets. In particular, adults under 35, known as the millennial generation, are putting off buying homes. Reasons millennials aren't buying homes include high demand and short supply of affordable homes and changing demographics. Here are reasons why millennials are bucking tradition and are delaying home purchases or not buying homes at all.
5 Reasons Millennials Aren't Buying Homes
The Great Recession
Unlike baby boomers and generation X who've enjoyed relatively stable economic conditions, millennials witnessed parents, family members and friends endure layoffs and home foreclosures during the Great Recession. Millennials understand that unstable labor and housing markets lead to financial uncertainty. Millennials are also putting off creating their own households as they marry and start families later than previous generations. These trends suggest that establishing careers and financial security takes priority over buying homes for millennials.
Shortage of affordable homes
Short supplies of affordable homes are keeping first time buyers on the sidelines. High demand for homes in general coupled with short supplies of affordable homes are sidelining millennials. Currently, construction levels for affordable homes accounts for about 20 percent of new home construction as compared to 30 percent prior to the recession.
Metro area home prices out of reach
Millennials working in high-cost metro areas typically cannot afford to buy homes near their jobs in areas where home prices average in the mid to high six figures. High rents and demand for rentals in major cities encourages renters to hold on to their apartments. The National Association of Realtors® reported a median price of $940,000 for a single-family home in the San Jose California metro area. Other examples of high median single-family home prices include $464,000 for the New York, New York metro area and $393,600 median price for a home in the Boston Cambridge, Massachusetts metro area.
More high-end homes being built
Builders are currently focusing on constructing larger homes. Over 50 percent of new single-family homes built in recent years were 2,400 square feet or larger. Ten years ago, approximately 40 percent of homes built were of comparable size. The emphasis on higher-end homes has contributed to the shortage of homes for first-time buyers.
Changing preferences for home features
Surveys of millennial home buyers reveal changing preferences for home size and features. According to a survey by the National Association of Home Builders and Better Homes and Gardens, millennials prefer smaller, energy efficient living spaces. Current trends toward simple living, small living spaces and environmentally friendly homes reflect millennials' home preferences. Quality instead of quantity defines millennials' preferences for their homes. Efficient kitchens, outdoor living spaces and quality materials such as granite counter tops and hardwood flooring are examples of preferred amenities for millennial home buyers.
As millennial home buyers gain in numbers, their influence is expected to impact home builders and community development planners. Within a few years, builders will likely turn their attention to building smaller, environmentally friendly homes to meet a new generation's preferences. When this happens, there won't be any more reasons millennials aren't buying homes.