​4 Reasons Millennials Aren’t Investing in Real Estate (And How To Change That)

Raf Howery  |

Millennials entered the workforce during the nation’s recession in late 2007, early 2008. They settled for low-wage jobs, often underemployed, and burdened with high student loan debt. With the economy slowly recovering since, millennials are still finding their place in the workforce and thinking about purchasing their first home. Equities.com published an article about why millennials should invest in real estate, and though we agree on all points, the reality is that many millennials still feel they simply can’t invest; there are several reasons as to why.

Though the nation’s overall homeownership rate is at an all-time low since 1965 - with the drop largely attributed to the delay in home-buying by millennials- many millennials are wanting to buy their first home. In fact, millennials (35 years and younger) actually led the pack in 2016 as the largest generational group of homebuyers at 35%. This data suggests the outlook for millennial home buying in the future to be optimistic, but there are many reasons why the rate of home-buying among millennials has been delayed. Here’s a look at why millennials haven’t been taking the plunge to dive into investing in real estate as quickly as in previous generations, and what can be done to accelerate the process.

The Economy

Millennials face high student loans and insufficient income to pay off their debts. Millennials’ median income is too low to save up for a down payment on a home. On top of that, rent is rising nationwide, which creates another hardship in saving toward becoming a homeowner.

The Housing Crisis

The hangover from the housing crisis led to underwater mortgages, creating an insufficient supply of high demand for homes. During the crisis, investors bought foreclosed homes with the intention of flipping them and reselling for a profit when the housing market recovered. But instead, they hung onto them to rent out. Realtor Ivan Estrada says “Real estate investment companies are getting in the way of home ownership, and more often in major metropolitan cities. People looking to buy a home, who are already finding a hard time getting a down payment, are losing bids to real estate investors who make an all-cash offer.”

Lack of Knowledge

Chief among the challenges that Americans, particularly millennial first-time buyers, face in their path to homeownership is a lack of knowledge about the minimum mortgage qualifications. A survey by Fannie Mae showed that 40% of all consumers said they didn’t know the minimum down payment required for a home, and 54% didn’t know the minimum credit score required.

Preferred City Living is Too Expensive

Contrary to reports about millennials moving to suburbia to compromise (on price) in buying their first home, millennials, in fact, are moving into big cities at a fast rate. The homes millennials want are expensive because they’re in prime locations. With many working and living in the city, they want to be able to use public transportation and fancy the idea of being able to walk or bike to work. The high demand for these homes is driving prices north.

What Can Be Done?

Loan Industry Must Act

The loan industry has started to address the issue of access to capital. A plethora of non-traditional loan companies that offer down payments as a loan for an equal share in the home have sprung up over the last few years. However, this is a major change to the way we think and what we know about traditional home ownership, and it’ll take some time to prove itself as a worthy solution. Many millennials are resisting this option as they’re uncertain about how it works, but getting educated on what options are available to them is a great start.

Banks Need to Reconsider

This is the generation that will build the country, and banks need to start thinking about making home buying possible for millennials. The real estate industry is struggling on how to handle the demand of clients who want to buy a home but have insufficient funds to make the down payment. With home prices rising fast, salaries aren’t catching up quick enough! Home buying seems to be becoming a further possibility for most. Real estate agents are working to find more clever and creative ways to get loan officers to work with new homebuyers, but until banks become less averse to risk, it’s not going to happen easily.

Fixer Uppers in the City

Realtors are used to pitching beautiful, turn-key homes to young millennials but should consider pitching fixer-upper homes to these often handy and tech-savvy homeowners. With their clients’ desire to live in more urban areas, older homes are more available and affordable than newly built or remodeled homes. The demand for home renovation is at an all-time high and a renovated home can often result in a larger long term return on investment. You can use the Kukun Home Estimator to accurately and quickly find out the cost of your home improvement projects online and find out its potential return on investment. This platform uses technology to allow for millennials to create quick and efficient bids for their projects and find a construction professional to help complete the work.

There are many factors that impede millennials when it comes to investing in real estate; some of which aren’t fully in their control, like inadequate salaries to save up for a down payment or lack of opportunity to secure loans. Getting educated is key for millennials buyers. Similarly, a shift in the symbiotic industries of real estate, banking, and construction needs to happen to allow these potential buyers the opportunity to become homeowners.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.



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