It’s the American dream to own a house, but this isn’t the case for most Millennials. Increasingly Millennials are putting off owning a house and instead are choosing to rent.
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“Millennials are just not a commitment kind of group. There’s a lot of fear about that first purchase,” says Kelly Hager, president of The Kelly Hager Group, a St. Louis, MO real estate firm. “They’re waiting to get married, waiting to buy houses.”
Hager cites the fact that many Millennials don’t like their jobs and that they’re looking to move around. Owning property doesn’t make moving easy, whereas having an apartment provides people with more flexibility and freedom.
For Millennials, the discussion of when to buy a house begins to surface at the later end of the age spectrum and after having kids.
What’s holding Millennials back from buying is a general fear combined with the cost of buying. “It’s not economically sexy in their generation to buy homes,” says Hager.
Millennials suffered greatly during the 2008 Recession and many are still anxious to spend. For Generation Y, which is saddled with trillions of dollars in student loan debt, many of them are not ready to take on significant house payments like maintenance costs or a down payment. Additionally, Millennials have a savings rate of negative 2%, according to Moody’s Analytics (MCO), which doesn’t improve their overall desire to save for a down payment.
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But Millennials should consider their buying options as rent prices are steadily increasing. According to the National Association of Realtors, over the last five years, a typical rent rose 15% while renters’ income only rose 11%.
And being a homeowner provides certain tax benefits that Millennials can take advantage of early on.
Despite their aversion to buying, Millennials do dream of being homeowners in the future. A recent Goldman Sachs (GS) study found that 30% of Millennials consider buying a home important, but not a priority. And a survey conducted by Apartmentalist.com concluded that 53% of Millennials will wait until after 2018 to buy a home, based on marital and age factors.
When Hager has met with Millennial clients, she says that they are quite particular about what they want, but need to understand that a buyer will probably get about 85% of what they want in a house. “If they don’t see what they love, they kind of get a bit discouraged in the process and this turns them off of buying,” said Hager.
She says that one of the biggest errors made in home purchases is that they are not pre-approved and that Millennials should get approved before they start looking. The second mistake they make is not acting fast enough on making an offer, which can result in losing your dream home and consequently dissuade Millennials from buying.
Hager says that once Millennials do make that first purchase, though, that fear of buying subsides.
“Once they get out there and start looking for houses, they become addicted again to the American Dream,” says Hager.