A Message For Young Home Buyers
Conflict between generations is a story as old as time. Older generations never seem to understand what makes younger generations tick or why they do the things they do. For years, millennials and Gen-Z have been the butt of jokes and derision. Rather than being complimented for creativity and a desire to change the world, they have been mocked for liking avocado toast and skinny jeans. However, as each day passes, millennials and Gen-Z are growing older and gaining more power. Now, more than ever, they are starting to flex their financial might and making an impact on markets. The housing market is no exception. In 2020, millennials were the largest group of home buyers and Gen-Z bought more homes than ever before. As these trends continue, it is important that younger home buyers have the information they need to make the most of their chance to become homeowners.
Younger Home Buyers are Uncertain
While more and more millennials and Gen-Z are approaching the point of buying homes, it is clear that there is a lot of uncertainty amongst these demographics. A recent survey of individuals aged between 25 and 40 demonstrates that many younger home buyers do not have confidence in today’s home prices. Some of the results of this survey are really eye-popping. About 25% of all respondents underestimate their buying power by as much as $150,000. About 25% of all respondents underestimate the increase in a home’s value by as much as $100,000. Additionally, almost half of all respondents have no clue what a good mortgage rate is. Younger generations are ready to stop renting and become homeowners, but they need the knowledge to prepare themselves for this process. The team at Streamline Realty is here to help young home buyers be prepared to buy a house.
Do Not Fear Down Payments
Many young home buyers are intimidated by down payments. According to Freddie Mac, one of the most destructive myths that young home buyers have is that you need 20% for a down payment. This would mean that for a home that is going for $300,000 a buyer would need $60,000. Thankfully, many home buyers are able to get the home of their dreams for much smaller down payments.
Research conducted by the National Association of Realtors indicates that most home buyers need far less. For homes purchased between June of 2019 and June 2020, the average down payment was only 12%. For younger home buyers, the news is even better. Home buyers aged between 22 and 30 had average down payments that were only 6% of the cost of the homes they purchased. For the same $300,000 home we mentioned earlier, that means that the average down payment made by younger buyers was only $18,000.
The truth is that young home buyers have a lot of options. Many younger home buyers are looking to purchase their first home, which helps them qualify for first time home buyer programs. Programs such as FHA loans allow first time home buyers to get mortgages with down payments as small as 3.5%. Many states, cities, and counties have their own programs to try and help first time home buyers.
Do Not Underestimate Your Buying Power
Many young home buyers have the false belief that they cannot afford the type of house they will truly love. They believe that they are locked into a starter home that will not meet their long term needs. Part of this is that younger home buyers overestimate how much it costs to buy a house and how much they will pay over the life of their home loan. At the same time, they underestimate the opportunity costs of not buying a home. Even if you do not buy a house, you still have housing costs. Instead of making payments on your mortgage, you end up paying rent. The big difference is that rent continues to increase, as opposed to fixed-rate mortgages where your monthly payment is flat. Why would you choose to pay more to a landlord than paying toward building equity in your home?
Furthermore, the price of houses continues to increase and mortgage rates will only go up. There is a tremendous demand in the real estate market to buy a house. As long as this demand exists, prices are not going to go down anytime soon. At the same time, many are expecting that as the economy continues to improve, mortgage rates will begin to increase. Even Freddie Mac is predicting that mortgage rates will begin to rise. Both of these trends mean that waiting to buy a home risks that it will end up costing you a lot more in the future.
Final Thoughts
Millennials have far less wealth than the generations that came before them. Part of this is because millennials have far lower rates of homeownership. Buying a house gives you a very large asset that builds value over time. The sooner you have a house in your portfolio, the quicker you will see the financial benefits.
If you are part of the younger generation and are wondering whether or not you will ever get the chance to buy a house, you should contact us. The professionals at Streamline Realty can talk you through how younger Americans all across our nation are finding homeowenrship possible and affordable. Do not let your own uncertainty over buying a house get in the way of actually buying a house. The truth is that you are probably closer to realizing your dream of owning a house than you realize.
