Millennial home buyers account for about a third of all home purchases today, and many are opting to purchase properties outside of the norm for a first home. “They rented for longer, and now they’re going to where they want to stay,” said Diane Swonk, chief economist for advisory firm Grant Thornton.
According to the National Association of Realtors (NAR), 36 percent of home purchases last year were made by Millennials, up from 32 percent four years earlier. Because most Millennials buying homes today are in their mid-30s, they are often married, have children, or simply desire more space and better amenities in their homes than have traditionally been included in first-home purchases. Traditionally, NAR analysts noted, a starter home tends to cost between $150,000 and $250,000. Three in every 10 Millennials opted to spend $300,000 or more on their first home, with one-third of buyers aged 33 to 37 purchasing four-bedroom homes as their first home purchase.
Investor Insight: With a death of “starter homes” on the market, offering older Millennials homes a step up from the traditional starter home may be a way to remain active in the retail housing market.
“The average Millennial is not even buying a house until they are in their mid-30s, and they want nice homes when they do so,” observed Bruce McNeilage, a developer active in Nashville, Tennessee, and other affordable southeastern metro markets. McNeilage’s single-family residential developments offer high-end features like granite countertops and stainless-steel appliances that he believes are important to Millennial households renting and buying.
Sam Khater, chief economist at Freddie Mac, observed that as the Millennial homebuying trend ramps up, many of these buyers are moving from “high-cost areas like New York City and Northern California to relatively inexpensive Southern states, enhancing their ability to buy pricier homes.” This is good news for housing markets with few entry-level properties in the inventory and for investors rehabbing homes for retail sale.
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