You may already be asking, “What are Millennials?” Trust me, a lot of people are asking the same question. They’re young, hip and revolve around technology. Coincidentally, they are on their way to having the biggest impact on the future of the housing market versus any other generation present.
Depending on where you get your data, Millennials (also known as Genereation Y) were born between the late 1970s through the early 2000s. This generation consists of around 80 million people with a significantly different mindset from previous generations. They have been directly affected by the results of the Recession in 2008. According to Business Insider, the Recession forced them to lean “toward risk-aversion, [have] a greater willingness to settle, and [have] a belief that luck plays a big role in future success.” They also endured A LOT of debt, most of which was accumulated from college. What does any of this have to do with housing and mortgages? I’m getting there.
Right now, home prices are growing at a strong, steady rate compared to last year. Bank Rate released data that stated the median price for a previously owned home was $191,600, am increase of 8.6% in the first quarter of the year compared to same the quarter as last year. This is a harsh negative for Millennials. As home prices increase, they are having a difficult time saving for a down payment due to high unemployment out of college, stagnant to very low incomes, and the continuous payments toward their student loans. The Dallas News states:
-Unemployment rate for 2013 college grads was 10.9% (ages 20-29), which was an decrease from last year’s 13.3% but is still a significantly high rate
– 41% of graduates from top universities and 48% of those from other schools could not land jobs in their chosen field after graduation, forcing them to settle for a lower-paying job
– The Labor Department reports that 260,000 college graduates were stuck last year working at or below the federal minimum wage of $7.25 an hour
These numbers are pretty shocking. Being a recent college grad, I saw first-hand how hard it is to land a job out of college. This puts a huge financial burden on grads because as soon as they graduate, their student loan payments begin. It is extremely difficult to save for any type of investment when you are searching for a job 3 months, 6 months or even a year after you graduate.
According to Chicago Tribune, around 40 MILLION Americans are in debt to student loans. “Estimates put that debt at an all-time high of $1.1 trillion, larger than the onetime bogeyman of credit card debt. During the first quarter of this year alone, student debt increased by $31 billion, and that’s 12 percent higher than a year ago.” It’s hard for Millennials to rationalize making a large purchase on a house, car, or financial investments in the stock market due to lingering worry over student loans. Not to mention low credit scores. Many Millennials get credit cards while attending college because, let’s be honest, they’re poor college students and need the money fast. thereby creating another debt. With little to no money to put down on a home PLUS low credit scores, there seems to be no chance for Millennials to afford a home.
Unfortunately, if Millennials are unwilling or unable to make the first home purchase, slowly it will create a larger issue with the GDP. Stephanie Karol, IHS Global Insight economist explained that “large population of non-homeowners will widen the wealth and equality gap in the U.S.” (Fox Business) Millennials are finding it difficult to save the money needed to make an investment, but they are lucky to be working in a time of economic growth. Since the recession, jobs have steadily increased, the housing market has regained its footing and people want to spend more. If they can get past their debt, Millennials can make a HUGE impact on the housing market. Harvard University’s Joint Center for Housing (explained more in detail on Washington Post) projected that Millennials will “make up 24 million new households between 2015 and 2025, substantially boosting demand for rentals and starter homes.” This will create an extreme amount of demand in the housing market because of how large this generation is. There is hope out there for Millennials, although some may not see it now. Debt has played a huge roll and will SLOWLY be reduced if Millennials are good about paying it off. Once it happens, the economy and that generation will in a much more stable state of mind.
If you are in debt and do not know where to start, here are a few tips to help you get a step closer to owning a home:
1. If you know you have had an issue with your credit in the past, repair any damage done NOW. This makes a huge impact on the loan process. The sooner you get your credit fixed, the easier this process will be.
2. Make sure your debt-income ratio is pretty low. This is your monthly obligations (debt) versus your gross income. If you can keep this at or below 36-37% then you should be fine. If you’re well above that point, start trying to pay down your debt or look into buying a cheaper home.
3. If you can’t come up with a large down-payment, ask about a FHA loan (Federal Housing Administration). This allows you to put as little as 3.5% down, but you will have to pay mortgage insurance monthly and have a higher interest rate.