4/15/15, 1:13 PMWhy Millennials Are Better At Home Buying Than You - Forbes

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Why Millennials Are Better At HomeBuying Than You

Lucy Mueller (http://blogs.forbes.com/people/lucymueller/) , Contributor

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Because of our sheer numbers, we millennials tip prettymuch any scale we touch, whether it’s the housingmarket or the wine industry (http://www.adweek.com/news/advertising-branding/millennials-are-changing-way-we-drink-wine-barefoots-top-marketer-says-162272). (We’re drinking more of it, but we prefer the cheapstuff.)

That’s why Gen Y is either thanked or scolded for most major market moves. Ayear ago, millennials were “dragging down homeownership(http://www.cnbc.com/id/101891825)”; this year we’ll “make it easier for youto buy a house (http://www.gobankingrates.com/mortgage-rates/millennials-make-easier-buy-house/).” Either way, as the older tier of the generationrounds into their early 30s, millennial homeowners are turning out more thanever before.

And we’re a really weird brand of home buyer.

Millennial homeowners are saddled with obstacles no previous generation hashad to face, like an average student loan debt per borrower that’s bothmonstrous and unprecedented. They’re also less romantic about the wholeprocess than their predecessors — buying before marriage, owning for shorterperiods of time, and flipping with gusto and success.

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Millennials buy houses earlier, own them for shorter periods and flip them more. It’s working.

The Forbes eBook To Succeed In A Brutal Job Market(http://www.amazon.com/The-Millennial-Game-Plan-Secrets-ebook/dp/B00K6KOK0K/?utm_source=articlelink&utm_medium=direct&utm_campaign=millennialebook)Don’t let a rotten economy spoil your goals. Use the career and money advice in The Millennial Game Plan to get and stayahead for good. (http://www.amazon.com/The-Millennial-Game-Plan-Secrets-ebook/dp/B00K6KOK0K/?utm_source=articlelink&utm_medium=direct&utm_campaign=millennialebook)

The country will soon get used to it. For the second year in a row, we representthe biggest group of home buyers in America, 32% of the market, according toa March 2015 report (http://www.realtor.org/news-releases/2015/03/nar-generational-survey-millennials-lead-all-buyers-most-likely-to-use-real-estate-agent) from the National Association of Realtors.

This number is only going to go up in the coming years. According to the 2015TD Bank Mortgage Service Index, 50% of millennials say they are either“extremely” or “very” likely to buy a house in the next year.

“Millennials will have a huge impact on the housing market for the next decade,just because of demographics alone,” Nela Richardson, the chief economist forRedfin, told me. “So whatever a few of them do, there’s enough of them thatthey’ll make a big impact.”

What enough of them are doing is making home buying pedestrian. And, atleast for our generation, that’s a smart move.

A Different Kind of Home Buyer

4/15/15, 1:13 PMWhy Millennials Are Better At Home Buying Than You - Forbes

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A more accessible job market, a later marriage age and the mammoth costsassociated with a wedding have meant many new home buyers are putting amortgage before a marriage (http://www.gobankingrates.com/mortgage-rates/why-millennials-bothering-married-before-getting-mortgage/).

Chantel Bonneau is a wealth management advisor for Northwestern Mutualand a Gen Y-er who bought her first condo by herself at 24. (Three years later,her second home purchase is in escrow.)

“A lot of millennials are delaying marriage and children by almost a decade, asopposed to people maybe 30 years ago,” she told me. “That just gives you adifferent phase of your life where you’re earning, you’re focused on your career,but maybe we don’t have all the same responsibilities as parenthood ormarriage yet. So that creates this new decade of life for some people — it meanslife choices to postpone some of those other relationship decisions.”

It’s a life choice many are making. A recent Redfin study(https://www.redfin.com/blog/2015/02/first-comes-love-then-mortgage.html#.VSMYR5TF-Y8) found that 38% of millennials have or woulddelay a wedding or honeymoon in order to buy a home.

That means several things; for one, millennials are looking to buy for utility andown for shorter periods of time — “they’re not really focused on buying thehouse that they’re going to live in forever,” Bonneau explained. For another,they’re looking at their purchases more as an investment(http://www.gobankingrates.com/mortgage-rates/benefits-homeownership-trump-stock-market-returns/) than a place to live.

That’s affecting the kinds of homes Gen Y-ers are purchasing, Richardson toldme.

“We know that a lot of millennials want to live in the city, they want to live closeto work, they want to live in walkable neighborhoods — and guess what? Theseneighborhoods are great investments,” Richardson said. “The millennials I’mprofiling are typically not the ones buying large McMansions in the suburbsthat will take longer to pay. Many of them are buying condos in the center ofcities.”

That was the case for Hanna Johansen, a 23-year-old digital marketingstrategist in Des Moines, Iowa, who bought her first home with her 22-year-oldboyfriend several months ago.

“Our home is more of an investment property for us,” she said. “We purchasedour house with the intent of improving it and making a profit, while alsoincreasing our credit score and credibility with the bank. We did a lot ofrenovation in the first month and a half before we moved in, and we willcontinue to make improvements over the next year, which is when we plan tolist it.”

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(http://www.forbes.com/sites/millennialmoney/)That kind of quick turnaround — once cautioned against by most financialadvisors — is again trending among home buyers, said Michael Slavin, founderof Privlo, an alternative mortgage lender that caters to millennials.

“When you look at the average life of a home loan, it still ranges in the five- toseven-year range. It’s a lot more transactional than it used to be,” he said.“That’s where I think we are very different than baby boomers. We don’t stay inthe job until we get the golden watch after 40 years. … Millennials — all of us,really — like upward trajectory in our jobs; we like to go to a job, really, reallydo well, get an advancement in our actual title, and then say ‘OK, now I’m readyto be in the market again.’ We might meet somebody on Tinder or Match andjust have to go there.”

The Unique Obstacles to Gen Y Home Buyers

Unfortunately, because more of us are short-term buyers, millennials arecompeting with investors for similarly priced homes — and are at a seriousdisadvantage.

“While the investor share has dropped in recent years, we do still see a highshare of investors in the market,” said Jessica Lautz, director of survey researchand communications for the NAR. “The investors could be coming in paying allcash for a home, where the Gen Y-ers wouldn’t necessarily have [all that] cashon hand and would be financing that through a mortgage.”

Samantha Hill, a 25-year-old director of marketing in Seattle, had this problemwhen she was shopping for a home with her husband.

“We bid on several homes over the course of a year,” Hill said. “We were outbidby cash buyers every time. Every home we wanted had well over a dozenbidders.”

And then there’s the down payment: often a struggle for home buyers in anygeneration, and a huge problem for a generation that is saddled with anunprecedented amount of student loan debt — about $28,400 per collegegraduate (http://www.usnews.com/news/articles/2014/11/13/average-student-loan-debt-hits-30-000), on average.

“The good thing is there’s lots of financial institutions that have designedspecial programs for first-time buyers where down payment requirements areless than historically required,” Malcolm Hollensteiner, the director of retaillending sales and production at TD Bank, told me. “Those options are plentifulthroughout the industry right now.”

This was Hill’s recourse; she took advantage of a USDA loan on a property inthe country — no down payment at all. “We bought at the end of the recession,so list prices were higher than previous selling prices. Because of this, weappraised $40,000 lower than asking and the sellers accepted,” she said.

Tips for Millennial Homeowners

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Gen Y-ers shouldn’t let their aspirations of homeownership give them financialtunnel vision, Bonneau told me.

“It’s not OK to ignore proper risk management, an emergency fund, utilizingyour 401(k) match, just because you’re so singly focused on buying property,”she said. “It is much more exciting, potentially, than saving for 40 years downthe road, but it’s the responsibility of forward-thinking millennials to not bethinking of just property now and throwing caution to the wind in terms ofeverything else.”

On top of contributing to your regularly scheduled savings goals, Bonneau said,millennial homebuyers should also keep a buffer for the various unexpectedfees (http://www.gobankingrates.com/mortgage-rates/true-costs-owning-home-11000-mortgage-loan-paid-full/) that come with new property.

“You have to understand the property tax in your area, are there HOA ormaintenance fees, if you’re part of an association,” she said. “If you’re part of anHOA, they have the right to potentially ask you for more money above andbeyond if they decide to embark on a big project like repainting the wholecomplex. Obviously if something breaks, it’s on you — you’re the landlord now.… You have to do your due diligence when it comes to what you’re buying.”

That due diligence extends to life insurance, too, which Bonneau said shepurchased for herself to make sure there would be no scenario in which herparents would inherit her debt.

April Masini, author of the advice column “Ask April(http://www.askapril.com),” added that unmarried couples buying a househave one last document to sign after the insurance and mortgage papers.

“Prenups are not just for married couples,” Masini told me. “Having a writtenagreement before cohabitation commences, when there is real estate involved,is always a good idea.”

It’s an unromantic process, to be sure — flipping a house, legally promising todivide assets equally, finding a condo within your budget. But the dream ofhomeownership hasn’t been lost amid the pragmatism of Gen Y-ers. The desireto own a home of your own remains the No. 1 reason people buy houses acrossall generations, according to the NAR, far more so than financial incentives.

For Johansen, and many other millennials, buying a home was both a milestoneand a badge for her relationship. With the help of family members and an odd,instructional video on YouTube, she and her boyfriend have been renovatingtheir new purchase.

“We have learned a lot about give and take, good communication andbudgeting,” she told me. “I think we also both really respect the hard work andskill set each of us bring to the table. It is so amazing to look at a successfullycompleted project and say, ‘We did that!’”