Millennials could hold the key to housing recovery
Dustin Walsh could've bought a house in his twenties, except he saw no point.
The 31-year-old had the income, but preferred the financial freedom of renting a room in his cousin's basement.
"With my generation, nobody thinks about their debt and nobody thinks about the future," said Walsh, a buyer for an international company.
But with a hearty push from his parents, he bought his first home last week. His tidy townhouse comes with a two-car garage that has enough space to store all of his stuff.
Walsh is just the typical millennial. And like many of those born since the 1980s, he waited a beat to buy a house. The percentage of Americans under age 35 who owned a home fell to 36 percent last year, the lowest level on record.
With millennials representing the largest demographic group in the country, their noncommittal attitude toward everything from jobs to marriage is stifling the housing recovery. Even as millennials – who far outnumber the baby boomers – approach their peak buying years, sales of entry-level houses are falling.
"The millennials will have a huge impact on the housing market," said Jed Kolko, chief economist for Trulia. "Whatever this age group does, whether it's housing or jobs or consumer spending, will have a big effect on the economy."
That's especially true in the Twin Cities, where low home prices and high wages made the region the second-most affordable housing market in the nation last year. More than a quarter of the people who are new to the Twin Cities are 20 to 34 years old.
Ross Gregerson knows the demographic well. The 25-year-old agent with Coldwell Banker Burnet has helped five millennials buy their first homes within the past two months. As buyers, they're unusual. They come armed with loads of information gleaned from the Web, and because they're highly social, they care more about the size of their kitchen than their bedrooms. They also are far more discerning than other generations.
"They're picky," he said. "They want a much nicer house than what other generations desire, but it doesn't have to be big. It needs a nice kitchen."
Khalid Khoury, a 25-year-old bank branch manager who's been living in his parents' basement for six months, said a nice kitchen and space for his 65-inch television top his wish list. He's been shopping for a downtown Minneapolis or St. Paul condo, but hasn't had much luck.
"Modern is a look that I'm going for," he said. "And I wouldn't mind a pool."
This isn't his first foray into the housing market. When he was a 20-year-old college student, he bought a five-bedroom house in Duluth that he rented to other millennials. He's now ready to sell that house and use the profits for his next purchase. Many of his friends are delaying homeownership because they're simply not preoccupied with the future.
"I feel like I'm more willing to pull the trigger on spending more for luxuries than my parents," he said. "With the company I keep, on some level, we're more materialistic."
Polls suggest that millennials haven't given up on home buying altogether, but are simply delaying the decision. Herb Tousley, director of real estate programs at the University of St. Thomas, said that the lack of a job security is a major factor.
"Young people are reluctant to commit to purchasing a home if they think there is a chance that they end up in a different job across town or in another city," he said.
Research shows that the recession was particularly hard on the millennials, who are more likely to be unemployed than other age groups and are more in debt, but a critical link in the housing recovery. The number of millennial households in their 30s is expected to increase by 2.7 million over the coming decade, boosting demand for new and existing houses. By 2020, millennials will make up at least half the workforce.
"Ultimately, the large millennial population will make their presence felt in the owner-occupied market just as they have already have in the rental market," says Daniel McCue, research manager for the Joint Center for Housing Studies at Harvard University.
In fact, more than 90 percent of millennial renters say they'll eventually buy, despite coming of age during the worst housing crisis since the Great Depression.
"Millennials have been shaken, not scarred, by the housing bust. Nearly all of them want to own a home someday," Kolko said.
Walsh, the 31-year-old first-time buyer, isn't so convinced that others in his generation will experience such an epiphany and suddenly want to settle down and start building equity.
"We're just living in the here and now and just spending on anything we want. Everybody just wants what they want, and they want it now," he said.
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