Tipping Point for Millennial Home Buyers?

March 26, 2015

Rising rents are increasing at such a significant pace that it’s prompting more Americans in their 20s and early 30s to move toward home ownership.

First-time buyers made up 29 percent of existing-home sales in February, marking the first increase since November, according to NAR. This is notable considering last year the number of first-time buyers sank to its lowest level in nearly 30 years. And in 2014, millennials comprised 32 percent of the U.S. housing market, and are replacing generation X as the largest segment of home buyers, according to the National Association of REALTORS®.

This shift is likely the result of several factors at play. One of the biggest may be that apartment rents effectively increased 4.6 percent in the fourth quarter from a year earlier, according to MPF Research, an apartment-data firm. Leasing costs have risen year-over-year for every quarter since 2010. 

Also prompting more millennials to move: The Federal Reserve is signaling interest rates will be on the rise soon, which would mark the first increase since 2006. Long-term mortgage rates have been near historic lows in recent years, which has helped lift housing affordability, but that will change once the Fed increases rates.

A strengthening job market for millennials also will likely be a main driver drive of home sales this year. For adults ages 25 to 34, the unemployment rate fell to 5.4 percent in February. In October 2009, it was at a high of 10.6 percent, according to Labor Department data.

The millennials – those born between 1980 and 1995 – are a massive generation of 75 million – a segment of the population that will likely surpass the baby boom generation in numbers this year, according to the Pew Research Center. 

“We’re just now hitting the point that the oldest of millennials are in their early 30s, which would be about time for them to make those moves,” Greg Willett, vice president of MPF Research, told Bloomberg. “The question is, do they have money for a down payment?”

Indeed, that may very well be the biggest obstacle millennials face in making a move toward home ownership. The gap between rents and incomes is widening to “unsustainable levels,” adding to millennials’ struggles in saving for a down payment, according to recent NAR research. 

Source: “Rising Rents Are Finally Forcing Millennials to Buy Houses,” Bloomberg (March 25, 2015)