Spoiler alert — fiction. Millennials now represent 42 percent of all new home loans, and are buying outside major metro areas.
Surprised? You may recall that realtor.com® predicted the rise in home sales by millennials from the 2019 National Housing Forecast. While affordability and the impact of the Great Recession have often been factors attributed to millennials staying away from the housing market, that has already begun to change. According to our latest analysis of loan originations, millennials are now taking on the lion’s share of mortgages by both volume and dollar value compared to any other generation.
Our analysis showed that while the median home buying price millennials take on is still lower than that of Generation X or baby boomers, millennials are showing interest in more affordable markets. Additionally, millennials are making lower down payments and taking on larger mortgages when compared to Gen Xers and baby boomers.
Millennials are getting older, with better jobs and deeper pockets, allowing them to expand their collective purchase power, and hence, their footprint in the market. The stereotype that millennials primarily choose to rent homes and live in large metro areas isn’t the reality. Results show millennials’ expansion is more heavily conditioned by affordability than in prior years, so their eyes are set on less traditional secondary markets where homes and jobs are now available and plentiful.
Affordability is such a key factor for millennial home buyers that this generation is moving to places previous generations have not, like Buffalo, N.Y., the top affordable market for millennials, according to this study.
Millennials Now Have More Buying Power
Millennials are still primarily in the life stage that requires starter homes. Despite a lower median purchase price ($238,000) than the two generations before them, (with baby boomers and Gen Xers spending an average of $264,000 and $289,000, respectively), millennials are increasing their purchase price at a faster rate than previous generations, indicative of this generation starting to move beyond starter homes.
Since early 2017, millennials have been the largest mortgage purchasers by the number of loans originated, surpassing Generation X as the leader in January 2017. As 2018 came to a close, millennials took on nearly half (45 percent) of all new mortgages, compared to 36 percent for Generation X, and 17 percent for baby boomers.
In November 2018, millennials finally overtook Generation X as having the largest share of new loans by dollar volume, with a share of 42 percent in December, compared to a share of 40 percent for Generation X and 17 percent for baby boomers. This indicates millennials are willing to take on larger mortgages than any other generation to fulfill their dreams of homeownership.
Millennial Home Buying is Driven by Affordability
In addition to increasing their buying power and taking on larger mortgages, the data shows millennials have consistently made lower down payments than other generations since 2015. While other generations have increased their down payments in response to rising prices, millennials have not been able to increase their down payments as much as older generations. Millennial down payments averaged 8.8 percent in December 2018, compared to 11.9 percent for Generation X and 17.7 percent for the more equity-rich baby boomers.
Given that the majority of millennial home buyers are searching for their first homes and do not bring equity from a previous home, it’s no surprise they are putting down smaller down payments. This is likely a driver of their activity in more affordable markets, where their money goes further.
Top U.S. Markets for Home Buyers Varies by Generation
Within the last year, millennials have moved to affordable areas with strong job markets where they have more buying power. At the end of 2018, the median price of a mortgaged home purchased by millennials was $238,000, $26,000 less than the median price of a home mortgaged by baby boomers ($264,000) and $51,000 than Generation X ($289,000).
By contrast, as members of Generation X are in their prime income-earning years, they purchased homes in strong job markets and secondary home markets, with five of the 10 markets on the list having unemployment rates higher than the national rate of 3.7 percent.
Many boomers are retired or rapidly approaching retirement, and therefore, showed a strong preference for buying homes in markets within primarily low-tax states or markets that are lower-cost than nearby metros, presumably to maintain wealth earned during their working years throughout their senior years.
This report on loan originations by age and generational groups is based on realtor.com’s analysis of a sample of residential mortgage loan originations from Optimal Blue. The ‘Generational Scores’ were calculated using an equal weighting of a group’s mortgage origination share and year over year share growth within a particular metro.