It seems like millennials are on the lookout for the best mortgage company, even amid a pandemic. At the beginning of 2020, Realtor.com predicted that millennials would buy the bulk of the United States’ real estate. Their share of mortgage originations had been foreseen to surpass 50% in the spring, significantly overtaking the share of total homes bought by Gen-Xers and Baby Boomers, which were only 32% and 17%, respectively.
This forecast was based on the behaviors of millennials in the housing market in 2019. Throughout that year, millennials represented 42% of all new home loans. But they didn’t buy homes with high median prices like what the Gen-Xers and Baby Boomers did. Instead, they showed more interest in affordable markets, such as the cities outside major metro areas.
And then came COVID-19 — were the millennials slowed down? Surprisingly, the pandemic did little in hurting millennial home-buyers. In fact, nearly half of millennials even accelerated their buying time. Thanks to record-low mortgage rates and stay-at-home orders, millennials were able to save up more money for a down payment. The buying process, however, was another story altogether.
Why Millennials are Eager to Buy a Home
Despite their generation’s tainted reputation when it comes to saving money, many millennials are actually in a good financial position. According to a 2019 survey, 44% of millennials have enough savings that can cover at least three months of living expenses, a.k.a. emergency savings. That’s a significant increase from the 2018 survey results, which revealed that only 32% of millennials had emergency savings.
As for their overall financial standing though, the numbers weren’t as promising. The same 2019 survey found that almost two-thirds of millennials are living paycheck to paycheck, and only 38% feel financially stable.
But that 38% must be doing rather well; since early 2017, millennials have been the most dominant mortgage buyers. By the end of 2018, nearly 45% of all new mortgages were taken by millennials. In November 2018 specifically, millennials have surpassed Gen-Xers as the ones with the largest share of new loans by dollar volume. This means that millennials are willing to get larger mortgages than any other generation.
Such is the case because millennials are getting older and having better jobs and more savings, allowing them to boost their purchasing power and their footprint in the market. In addition, affordable houses are increasing their interest in homeownership, especially if those homes are in inexpensive areas with strong job markets.
Considering that, the stereotype that millennials are only looking for condos in urban areas isn’t true at all. Instead, they prefer modest, mid-size apartments or suburban homes. Given that many millennials are starting to have their own families, it makes a lot of sense why they’re willing to forego luxury. Realtor.com actually predicts that millennials will grow more interested in “family-friendly lifestyles and affording homes.”
COVID-19’s Impact on Millennials’ Home-buying Plans
The falling interest rates and health protocols gave millennials the opportunity to save more money for a new home. However, their buying journey hadn’t been smooth. In a survey released by Angi (formerly known as Angie’s List), it was found that millennials who bought homes in March 2020 and beyond experienced more hurdles in finding and closing on new homes.
According to Mischa Fisher, chief economist at Angi, many millennials spent a long time looking for homes, submitted multiple offers, faced bidding wars, and were pushed back to older inventory. In addition, they exceeded their budgets and landed in homes that required more repairs or renovations.
42% of Angi’s survey respondents spent six months or more on home-searching alone, and out of those, 57% visited over 20 homes. Such was the scenario because many sellers became hesitant about making big money during an uncertain period. Moreover, sellers felt unsafe opening their doors to strangers during a global pandemic.
As a result, the market had fewer homes, meaning fewer options for millennial buyers. Naturally, it would take longer to choose a home if the options are scarce.
And once a buyer had chosen a home, they had to compete with other buyers who may have had better offers. Two-thirds of millennial home-buyers put in at least four offers before winning a bid. One-third paid more than the purchase price, and 35% stretched their budgets with their offer.
Their struggles didn’t end yet after getting the keys to their new abode. 56% of millennials ended up in homes that required minor or major renovations. But even so, millennials couldn’t pass on the opportunity to buy a cheaper home, regardless if it’s a fixer-upper. Besides, home improvements boomed during the pandemic. They can use their extra budget for renovations that can increase their home’s value, benefiting them in the future.