It’s official. Millennials, adults age 18 to 34, now outnumber baby boomers. After coming of age in the rubble of the housing collapse, older millennials are beginning to tiptoe into homeownership, but as the largest generation in U.S. history, their unique perspective has large implications for the housing market.
Millennials who rent or live in their parents’ basement get all the attention. What about the ones who have already achieved the American dream? To understand the future of housing, we need to understand the sentiments, motivations and plans of the millennials who own homes now.
Redfin surveyed more than 2,200 homeowners of all ages across the country to learn how they think about their homes’ value–both monetary and emotional.
What we found was surprising. When it comes to homeownership, millennials think differently than their Gen-X cousins and boomer parents.
Home prices in some markets have increased by 30 percent or more in the past few years and three out of four homeowners in our survey believe home values will continue to go up. Millennials were even more bullish. Eighty-six percent of homeowners under age 35 believe that prices will rise in the next 12 months.
And while 24 percent of homeowners 35 and older think prices will stay about the same, only 11 percent of millennials agreed.
Despite rosy expectations that home prices will rise, millennials are more confident than their elders that they’ll still be able to manage the cost of living in their cities 10 years from now. That makes sense given that those young homeowners have the bulk of their income-earning years ahead of them and they’ve already started building equity.
Sixty-three percent of millennials and 64 percent of young Gen Xers said they’ll be able to afford living in their city a decade from now, compared to just 51 percent of those aged 45 to 54.
Overall, homeowners are staying in their houses longer. In fact, housing tenure has doubled in the past 15 years, according to Redfin analysis. But millennials are holding onto their youthful wanderlust. Job opportunities and growing families will drive them to trade up or move on.
More than half of millennials in our survey said they’ll leave their current home within the next five years, while just about a quarter of baby boomers plan to move out that soon.
Only 18 percent of millennials said they’ll live in their home for more than 10 years, whereas at least 30 percent of homeowners in each of the older groups intend to remain in their home for another decade or longer.
“Millennials are looking for the ‘right now’ property, not the ‘forever’ home,” said Katie Scire, a Redfin agent in Washington, D.C. “They have a five- to seven-year time horizon because they know their lives will change. They’re more focused on location, amenities and convenience instead of the house itself.”
The last time annual 30-year mortgage rates topped 5 percent was in 2010. So it’s no wonder that among respondents to our survey, no millennial homeowner had a mortgage rate above 5 percent. Back in the 1980s, when their parents were their age, mortgage rates were in the double digits.
With home loans so cheap, millennial homeowners are privileged to inherit some of the lowest borrowing costs in modern history. Rock-bottom fixed-rate mortgages will make it easier for young homeowners to build equity compared to earlier generations.
For millennial homeowners, cheap borrowing and bullish price expectations will lead to a mass generational rethink about when and how to trade up from a starter home.
As it turns out, they’re already rethinking things in a way that will shape the housing market.
Once they move, 28 percent of millennials plan to rent out their home rather than sell it. By comparison, only 4 percent of homeowners 55 and older want to be landlords. More popular alternatives for older homeowners are selling or passing the home onto relatives.
For the lucky few millennials who can afford to buy in the current bull housing market, there’s a lot of upside to holding on to their starter homes. Rising rents, short tenure clocks, bullish price expectations and rock-bottom mortgage rates make housing a good permanent investment for millennial homeowners. This preference by millennials to rent out their home instead of selling it will likely ensure that the chronically low supply of homes for sale remains a persistent feature of the U.S. housing market.
Methodology:
From March 23 to March 28, Redfin surveyed 1,782 homeowners who have owned their primary residence for at least 5 years in 15 major U.S. markets where home prices have risen substantially in the past few years and, thinking economically, people should consider listing their homes. After reviewing responses, we realized that our sample of long-term homeowners in those relatively expensive cities was predominantly older people, with 80 percent of respondents age 55+ and the vast majority having no plans to move soon. To understand what’s going on with younger homeowners and those who more recently purchased their primary residence, we sent the identical survey to closed Redfin homebuyers who purchased their homes since 2010. 460 completed that survey from April 9 through April 30.
Targeted markets:
