Why some Millennials are missing out on the real estate boom and what they can do to change it

Posted on March 9, 2017

Royalty-Free Stock Photography by Rubberball

We love Millennials. So many of them are smart, sociable, passionate, eager to try new things, and want to be challenged/inspired by their work. It’s a fun generation!

Unfortunately, the Millennial generation is trailing previous generations in first-time home ownership rates (near a 30-year low according to NAR). In many ways, this is understandable considering many of them came of age during the Great Recession and its aftermath when job prospects were limited. As a result, their growth into the predominant home buying sector is more tempered than it would have been had the Great Recession not occurred. Even though they now make up the largest part of the home buying market, more young adult children are living at home now than at any time since the Great Depression of the 1930s.

While it’s easy to understand why some Millennials have delayed home ownership, what’s not is why some continue to pay average rent of $1,300 per month for a one-bedroom apartment in Atlanta (The Apartment Guide) when they could be paying the same amount to own a home ($1,300 per month based on a $250K mortgage loan amount at a 4.5% interest rate). They also are missing the opportunity to build wealth through asset appreciation and to save money on their income taxes through the mortgage interest tax deduction. If they stay in a home at least two years, they also get to keep the money gained through appreciation tax-free. With Atlanta home prices averaging an annual gain of 5%, that’s a potential two-year gain of more than $25,000 on a $250,000 home.

We want Millennials to prosper and take advantage of the next 5-10 years when we think we will see the best real estate bull market run possibly ever due to the sheer size of the Millennial generation. Here is what some Millennials tell us and what we tell them about buying a home now:

  • I can’t afford the down payment. Understandable, but easy to overcome if a parent or grandparent is willing to loan the money for the down payment (send this article to them ;-)). Many Baby Boomers are beginning to be forced to make 401k withdrawals this year and real estate is as good as any place to park money. Also, FHA loans offer options for as little as 5% of the purchase price for a down payment (compared to 20% for most conventional loans) and if you’re living at home you already have a way to save for your down payment through free rent.

  • I’m afraid there is another “housing bubble” due to run up in home prices in recent years. The housing bubble of the late 2000’s was a once in a lifetime event. For the 50 years that the National Association of Realtors has tracked home prices, 2008-09 was the only year home prices declined. Also, oversupply and easy credit were the reasons for the housing crisis of the late 2000’s and neither condition exist today. In fact, supply is dangerously low and demand is at a record high (for Atlanta). If home builders will build more homes and more home buyers become interested in renovations, this market will have serious legs.
  • I can wait because I don’t have to buy now. Since 2011, waiting to buy has cost renters more than 55% in home price appreciation per the local MLS. On a $250,000 home, that’s a gain of $137,500. The return on real estate will be nowhere near where it was between 2010-2015 but it will continue to appreciate because of Atlanta continues to attract new businesses and population, the economic outlook is favorable with anticipated tax cuts, deregulation and infrastructure spending and the sheer demographics of Millennials. Also, the Federal Reserve funds rate is set to go up again this month and most think it will happen again in 2017. Buying a home tomorrow even without taking into consideration price appreciation will be more expensive than it is today. If all of that rings hollow, just remember what Mark Twain said, “buy land, they’re not making it anymore.”
  • What I want to buy doesn’t exist. This is a challenge for all buyers right now. Many Millennials want to be in walk-able neighborhoods close to work, restaurants, shopping, etc. and very little of that exists ITP (Inside the Perimeter) that is affordable (less than $500,000) and doesn’t need work or isn’t otherwise “apartment perfect”. There are some new condos under construction but virtually all are high-end. Many Millennials are flocking to areas with either walkable town centers or transit connectivity such as Roswell, Smyrna, Kirkwood (East Atlanta) and Chamblee. Some areas that are even more affordable and may fit the same bill (long-term): Riverside (at the end of Moores Mill Road), West End, and downtown East Point. Buying in these areas will require Millennials to embrace “fluffing” (painting, landscaping, minor updates) and flipping homes.

Read more about the state of the Atlanta housing market in the current issue of The Beacham Insider.