By Mary T. Prenon
SEBRING, Fla. – In the past two years, skyrocketing home values have priced many millennials out of the real estate market. Now with interest rates hovering around 6.5%, millennials face yet another costly barrier to homeownership. About half of the millennials polled say rising interest rates hold them back from homeownership, according to a Real Estate Witch report of 1,000 Americans looking to purchase a home in 2023. Among millennials pre-approved for a mortgage, 40% said their rate was higher than expected. Not surprisingly, 81% of millennials wish they’d bought a home before interest rates increased.
“We’re not going back to the 2.5% and 3% unprecedented rates we saw during the pandemic,” says Davina Arceneaux, owner of Motto Mortgage Services in Chicago. “I don’t think we’re going to see those numbers again for a very long time.” Although rising interest rates have caused home sales to decline, inventory is still so low that prices haven’t dropped significantly.
Low inventory, however, isn’t the only reason home prices remain elevated. Inflation has also pushed home prices higher, and 92% of millennials believe it will have a major impact on their home-buying plans, according to Real Estate Witch.
Some [millennials] have had to reevaluate what they can afford,” says Anthony Ruperto, team lead at J.Philip Real Estate in Westchester County, New York. “They may decide to look for something smaller or maybe a bit further away than they originally wanted. “They may be commuting to the city only two or three days a week, so they can look for homes where they’ll be able to get a lot more for their money. In Manhattan, $400,000 may get you a small studio apartment, but in Dutchess County – three counties to the north – you can get a decent-size home for about the same amount.” Still, more than half of millennials said they can’t afford a home.
One of the other significant barriers to homeownership is saving for a down payment. Inflation has eroded millennials’ savings, and 54% have less than $10,000 in reserve. That percentage has tripled since 2022.
What’s worse, 1 in 5 millennials have no money at all in savings. As a result, nearly two-thirds of millennials plan to offer less than 20% on a down payment for their home, according to Real Estate Witch. That’s twice the number of millennial homebuyers who paid less than 20% upfront for their home just one year ago.
On average, millennials spend just 5% to 10% on a down payment for homes listed between $350,000 to $500,000. A down payment that small requires buyers to pay private mortgage insurance until they reach 20% equity or more.
A significant debt burden is further leveraging millennials’ struggle to save for a down payment. Almost half of the millennial buyers surveyed by Real Estate Witch admit they are $10,000 in debt, and almost 20% owe $50,000 or more. To save money, millennials may opt for more dated homes that tend to be less expensive – although fewer are betting on fixer-uppers. Nearly two-thirds of millennials surveyed by Real Estate Witch say they would buy a home that needed significant repairs – a sharp decrease from the 82% who said the same in 2022.
“They’re open to doing cosmetic upgrades like painting and carpeting, but a lot of them don’t want to undertake major projects when they’re first buying a home,” says Kale Corey, principal broker at Elevated Living in Seattle.
Although high prices and interest rates make it more difficult for millennials to buy homes, the changing market has brought some relief. Buyer competition is no longer seen as a barrier to homeownership. Just 29% of millennials say it’s an obstacle now, compared to 59% in 2022.
“We’re not seeing those huge over-asking prices and escalating bidding wars,” Arceneaux explains. Millennials may be willing to take risk to own a home, but they’re also looking for tried-and-true ways to make the purchase more affordable, such as working with a low-commission real estate agent or an agent who offers a homebuyer rebate.
“There’s a lot more seller concessions being offered now that you didn’t see in 2020 and 2021. Sellers are more willing to negotiate, and sometimes, they may even agree to pay the buyer’s closing costs.” Three-fourths of millennials think the housing market is in a bubble that could burst in 2023, ushering in an era of greater affordability. But experts suggest tempering that expectation.
“I think [the real estate market] may be pretty boring in terms of prices and interest rates,” Ruperto replies. “I think we’re going to see a continuing stabilization after the insane market over the last two years.”
Copyright © 2023, Highlands News-Sun, all rights reserved. This article was produced by Real Estate Witch, and syndicated by Wealth of Geeks.
