Buy vs. Rent: How Millennials are Tackling Housing in the U.S.
The 2007 financial crisis caused the American housing market to collapse, creating the longest economic downturn since The Great Depression. That period officially ended five years ago, and cities across the country have more than fully recovered. Major states with metropolitan areas larger than 500,000 residents have even surpassed their pre-recession economic levels, thanks to lucrative industries that either sprouted from the ground post-recession or kept cities afloat through the crisis.
The growth and recovery isn’t all roses, especially for Millennials. With rising rents, many of them want to buy homes, but find the process confusing and overwhelming. For others, student loan debt, job market and negative financial factors push them towards a trend of being long-time renters. In 2015, as the feds are set to raise the rates, Millennials nationwide are asking themselves: “Do I rent or buy?”
Millennials Believe Homeownership is a Great Investment – For Those Who Can Afford to Buy
According to a 2015 Gallup survey, Millennials believe real estate is the number one “best long-term investment” they can make.  In 2014, the National Association of Realtors reported that among buyers of primary residences, 33 percent were first-timers. Of those new home buyers, Millennials made up 32 percent, up from 28 percent two years earlier. 
Low mortgage rates and lower home costs have made it possible for younger buyers to enter the housing market. In 2015, 66.5 percent of new and existing homes sold between January and the end of March were affordable to families earning the U.S. median income of $65,800. The national median home price declined from $215,000 in the fourth quarter to $210,000 in the first quarter. Meanwhile, average mortgage interest fell from 4.29 percent to 4.03 percent in the same period. 
This has led to increased housing inventory for young buyers to choose from. According to Realtor.com, the listings inventory is now growing faster, at 4 percent over April 2015. However, it is still down compared with 2014. In part, because of the limited inventory, the median list price increased nationally to $228,000, up 7 percent over the previous year and 1 percent over April. At the same time, homes are moving more quickly. Median days on market, now at 66, continued a sharp decline, down 11 percent year over year and 10 percent month over month.  While the housing marketing is continually shifting, the current status has moved Millennial buyers to purchase before 2015 ends. “Millennials are working through hurdles such as student debt, lack of down-payment funds and later family formation than previous generations,” says Jed Kolko, chief economist for real estate website Trulia, a unit of Zillow Group Inc. “We are at the beginning of a multiyear period where more young people become homeowners, but it will happen more slowly than most people expect,” he adds. 
Millennial Home Facts
The median home cost for millennials is $228,000 97 percent of Gen Y buyers are financed. When financing the home purchase, younger buyers also financed larger shares. The typical Gen Y downpayment is seven percent and Gen X is 10 percent.
Among all generations of home buyers, the first step in the home buying process is looking online for properties for sale. Gen Y is most likely among generations to also look online for information about the home buying process.
More than half of Gen Y and Gen X buyers used a mobile device during their home search. Among those who did, 31 percent of Gen Y and 26 percent of Gen X found the home they ultimately purchased via a mobile device.
Millennials Still Rent, and May Rent for the Rest of Their Lives
On the opposite end of the spectrum, many Millennials are forgoing homeownership all together. And according to Gallup poll, 41 percent of Millennial non-homeowners in 2015 don’t plan to buy a home in the foreseeable future, compared with 31 percent two years ago.  Since 2007, the nation’s homeownership rate has been falling, down to 63.7 percent in the first quarter of this 2015 from a peak of over 69 percent in 2004, according to a new report released by Harvard University’s Joint Center for Housing Studies. 
Because of this, the decline in housing purchases has led to a boom in rentals, as well as significant rise in the cost of renting. On average, the number of new rental households has increased by 770,000 annually since 2004, making 2004–2014 the strongest 10-year stretch of rental growth since the late 1980s. 
According to the Urban Institute, between 2010 and 2030, 59 percent of 22 million new households will rent, while just 41 percent will buy their homes.  In fact, between 2010 and 2030, the Urban Institute reports of those 22 million new households, 13 million will rent and 9 million will buy. [9.1] Student loans, limited growth in job wages, lack of down payments and the residual efforts of the last economic bust are the catalysts for this trend. There are also millennial households that are considered prime candidates for ownership that are simply choosing to rent because of cultural values within their families.
Will Millennials Rent or Buy in the Future?
Over the next 15 years, America is in for tremendous demographic change. Our nation’s changing demographics are also causing a major shift in housing trends. And nearly every corner of the country will grow more diverse.  When we overlay the fact that the slow and steady growth in housing is starting to drive home purchase costs up with the growth in the demand for rentals, we see the gap between housing costs and incomes widening at an unsustainable level in many areas of the country. So how will Millennials tackle housing in the future? Whether they rent or own, they must stop looking at the real estate marketing in a very linear way and educate themselves on the options available to them now.
Internet Plays Key Roles In Housing Searches: Younger buyers are not only more likely to use the internet during their search, but they also use the internet more frequently during their home search process. Apps like Redfin, Zillow and Trulia are key tools in pre home purchase search. For Renters, RadPad, LiveLovely, Rent Jungle and Craigslist are key.
The 20 Percent Downpayment is a Myth
Contrary to popular belief, Millennial buyers do not have 20 percent for the down payment. There are many options for those who don’t. While a down payment of 10 percent or more negates the cost of mortgage insurance, many lenders can work property taxes and mortgage insurance into the overall cost of the house, as well as the monthly payment so buyers know exactly what they are spending. Millennials should understand that it is easier to take out a loan than they think, if they have good credit scores (720 or higher). “A quick review of the requirements for some of mortgage loans available may surprise you,” says Logan Mohtashami, a California-based loan officer. “The notion that lending standards are tight is a myth,” he states. 
There are even options for those with less than stellar credit. For example, VA loans require no down payment, and buyers can get other mortgages with credit scores as low as 560, with 50 percent debt-to-income ratios. The Federal Housing Administration loans allow buyers to qualify for a mortgage with as little as 3.5 percent down. Freddie Mac and Fannie Mae recently launched their own low-down payment programs that only require 3 percent down.
For other millennials, the REX Homebuyer program can be a viable option. REX is not a mortgage lender, but it offers down payment assistance in exchange for an equity share of the home’s appreciated or depreciated value when sold (special provisions apply if a home is sold within three years before the property has had time to appreciate). Buyers must come up with at least half the down payment themselves.  First time buyers should also look at state and regional first time buyer assistance and incentives.
Millennials are savvy buyers: Forbes reports that millennials live in houses longer, sell them at greater profits and view homes as investments instead of forever dwellings.
Millennials are Exploring Co-Buying
Multigenerational homes have become more mainstream. Many millennials should consider buying homes with family members, and many are. A recent Pew Research report found that 57 million Americans (about 18 percent of the population) lived in multigenerational households in 2012, compared to 28 million in 1980. [11.1] Interestingly, it is not just parents and adult children who join forces to buy a home. Friends or siblings might enter into a co-buying arrangement. In some cases, parents might buy the property and charge rent to their children, or in other cases, all adult occupants might be on the mortgage together if they had good credit or needed the income to qualify for the loan. “When there are several borrowers, lenders use the credit score of the borrower with the lowest credit,” says Bob Collins, a mortgage broker at Signal Hill Mortgage in California. 
According to Amy Rivers, Managing Broker of Next Home Realty in Sacramento, says, “The trends that we are seeing in the Northern California real estate market include the emergence and proliferation of multi-generational family living situations. With this buyer group, we see them looking for homes with two separate master suites or larger homes with guest houses to provide opportunity for combined families to have plenty of space to live comfortably together while maintaining a bit of privacy.”  Rivers also shared that millennial buyers want to be in close proximity to shopping, restaurants and local recreation spots.
Millennials Should Also Explore Moving to a Cheaper Region
Zillow reports that the median home value at the end of last year topped $1 million in San Francisco and Manhattan. Certain hot real estate markets like New York, Miami and Los Angeles may be out-of-reach for most Americans. Communities in Western states such as Texas, Colorado, Arizona and Utah are seeing huge growth, thanks in part to lower housing prices. The migration to the west coast has caused double to tripled digital growth in home property values. [10.2]
Doug Labor, Broker Associate at Steamboat Sotheby’s International Realty in Colorado, says that Millennials and other buyers are drawn to the southwestern region of the U.S. because “people are first drawn to its natural beauty, healthy climate and diverse economic base. The region offers a wide variety of recreational opportunities for a wide variety of interests.”  Labor added that in addition to the quality of life, buyers can also afford to purchase their home instead of renting long-term while also finding well made homes that are move-in ready. Labor advises that Millennial buyers get pre-qualified with a local lender who can help first-time owners find the best loan programs for them.
Millennials Should Explore Renting or Buying in Communities Designed for Their Lifestyle Choices
Another option that Millennials have is to get creative and innovative in order to build future living situations that suit their lifestyles. In a number of American markets, there are real estate groups developing rental communities that are designed to fit Millennial lifestyles. There are also groups that are developing cost effective housing communities as well. For Millennials who explore cheaper regions if they choose to rent, they can find apartment communities that offer great community features. In Denver, a 800-square foot luxury highrise with parking, gym, dog park and yoga classes averages $1,650 per month. In Colorado Springs, the same type unit costs $1,300 per month. Depending on the location, community classes, hiking trails, food events with local restaurants and more can be found as well at no additional cost.
Those choosing to buy, but wanting to spend $100,000 to $225,000, should consider communities such as The Mill at Broadway in Sacramento. The Mill at Broadway is a first of its kind housing development that will feature 1,000 residences in the next four years. The Mill at Broadway not only offers state of the art at cost effective pricing, but it is also a city within a city. Residents will have access to river trails, dog parks, an art gallery, a coffee shop and community working spaces. The development is giving back to the community as it grows by offering free space to local elementary schools to help students learn. The HOA fee is capped at $110 per month and will go down as more residents move in. Russell Brenton, director of marketing, says, “Millennials don’t want to be tied to large payments. They want to live active, dynamic lives that allow them to explore and socialize.  We developed The Mill at Broadway to give them what they wanted most. Homes feature state of the art technology including mobile controlled climates and palm scanners for access.”
What’s Next In Housing For Renters or Buyers
As the American housing market continues to recover, whether Millennials continue to rent or buy, those selling or renting them housing are going to have to cater to their lifestyle choices. By designing communities and providing rentals that allow them to live dynamic lives, real estate agents and landlords will find lucrative incomes for themselves and their companies, despite rising market costs or economic instability.
Wall Hub, 20 Most & Least Recovered Cities. June 2014.
Gallup Poll, Americans Again Say Real Estate Is A Good Long Term Investment. September 2014.
National Association of Home Builders, Increasing Housing Affordability Opens Doors For More Americans, June 2015.
Realtor.com, The 20 Hottest U.S. Real Estate Markets. May 2015
New York Times, More Americans Are Renting, Paying More As Home Ownership Falls. June 2015.
Zillow.com, Where Do The Luckiest Americans Live? July 2015.
Washington Post, How American Demographics Are Changing, January 2015.
Bloomberg News, Rising Rents Are Finally Forcing Millennials To Buy. March 2015.
Urban Institute, Headship and Homeownership: What Does the Future Hold? June 2015.
U.S. News & World Reports, Creative Ways Americans Can Buy A Home. February 2015.
U.S. A. Today, Is Renting The New American Dream? June 2014.
Realtor.com Trends – 2015 Home Buyer and Seller Generational Trends. March 2015.
U.S. Bureau of Economic Research, American Housing Trends, September 2015.
[INT] Interview conducted by Author.
[INT2] Interview conducted by Author.
[INT3]Interview conducted by Author.
Joint Center for Housing Studies: The State of American Housing
Gallup, Fewer Non-Homeowners Expected To Buy Homes. April 2015.