Seems like we’ve been talking about the expected Millennials’ buying tsunami for so many years now that I am both surprised and disappointed that a tsunami… it is not. In fact we can hardly see a wave. Still waiting though. It has got to happen sometime. We cannot disregard the buying potential of 79 million individuals!
To better understand the topic, let’s try to define “Millennials”. According to the experts, the appellation covers those of you (and others) who are in between 18 and 35 years of age. Those who are just now aspiring to a successful professional life and many who are already enjoying it. At the end of this year, they will represent the largest generation in the workforce, slightly ahead of Boomers (76M).
The Millennials, as we have been told, are free-spirits, fast moving, ambitious, mobile, fun lovers, job hoppers, independent, irreverent, relationships activists, social media fanatics, idealists, hedonists… Anything else comes to mind? Frankly, these traits do not look much different from those that characterized this age group through the last decades, except for one thing: now the Millennials have an iPhone, use Facebook, and live in a world that is evolving around the clock.
OK, there is another thing, one that we alluded to in the first paragraph: the Millennials are not exactly waiting in line to buy real estate these days. At least not the way we expected them to, and not the way their predecessors (in the same age group) did in years past. What’s going on?
Last month, as a coincidence, a bunch of docs about Millennials landed on my desk or my computer screen. Well written studies or articles published by serious entities such as NAR (National Association of Realtors), the WAV Group and the San Francisco Magazine. I read them all and learned quite a bit more about why Millennials are not buying homes right and left. Take a look.
- They don’t have enough money. You cannot argue with that one. Times, they are tough in the Millennials’ world. Many of them, victims of the Great Recession or the slow recovery, are still looking for a job, or looking for better pay. Many of them are still paying for student loans and they cannot come up with a down payment. Many of them have a lousy DTI (debt to income) and consequently too low a credit score. When they qualify for a loan, they get hit with a higher interest rate, which pushes the mortgage payment to painful levels. At a time when property values, from one coast to the other, have skyrocketed, home ownership is a financial challenge many cannot master.
- They are not necessarily placing home ownership on top of their list of needs & wants. Remember, Millennials are not conventional. Many don’t share the American Dream. Not that they just want to have fun, but they may attach more importance to the moment than to the future. The future will come soon enough. Travelling and partying with friends may have a priority over fighting to get a mortgage and then fighting to pay it.
- They are not ready to think about “unnecessary” obligations, constraints and responsibilities like, you know, a spouse, a kid, a dog… Life is good, why complicate it. Life in the burbs, as it has been illustrated in Hollywood movies, is not fast enough, exciting enough for lots of Millennials. They want the big city pulse, the busy streets, noise, traffic, eateries, clubs and all other venues that create social opportunities.
With such a state of mind and financial limitations, you may wonder whether greater numbers of Millennials will ever want to buy a home, just like Mummy & Daddy. Wonder no more: they will, and this is why:
- They are getting richer. The economic recovery, however slow it has been, has replenished many of the Millennials’ bank accounts. More jobs, better jobs, better-paid jobs. What do you do when you have a better income and deeper savings? You buy real estate. That’s what you do. Wasting good money renting no longer makes sense when you can buy your own place, build equity and perhaps end up paying less per month.
- They are getting older. Wait-Wait-Wait: life goes on and pretty soon you are young no more and your needs are different. You are more accountable to others, professionally and socially. You may even show your ambition to move up in the world. How conventional! You may have a family. You want a house. You want to own your own home. Imagine if 10% (or even only 5%) of the 79 million Millennials were house-hunting next year!… Now you’re talking about a true buying tsunami! Hold your breath!
Senior Vice President, General Manager of Intero Prestigio International