Breaking the Millennial Out of Home Buying Gridlock
They have good reasons for caution, but you can help them.
Even with encouraging job and wage reports starting in early 2014, many real estate market experts and economists are still less than enthusiastic about the return of the Millennial generation to the real estate buyer market. The young generation, particularly recent college graduates, have historically been the foundation of first-time new home buying.
Better Jobs and Wages but Hesitation
First-time new home buyers were the demographic driving housing demand before the market crash that began in late 2006.
After the crash, there have been a number of factors keeping them out of the market. Millennials are for the most part renting, doing the roommate thing, or living at home with parents. They're not buying homes.
It could be years however before many of the younger generation can be pried off their fence-sitting position into buying a home. This group still must come up with a down payment, reduce student loan debt, and work on better credit scores in some cases. They will be wanting to see the prospect of significant income growth before taking the plunge.
Home prices aren't cooperating either. They've been rising faster than wages. Young adult employment levels also have been very slow to return to pre-recession levels. So, the challenge is how to help someone in this generation to see an opportunity in the current market if they're in a position to buy. Notice that I didn't say that it was a sales challenge.
They will not respond to a sales pitch.
Analysis of their Situation
If they're not ready, it's not the time. That's hard for a real estate professional to swallow, but it's the way to keep your clients' best interests in front of yours. If they have a down payment, a decent debt-to-income ratio, and some desire to own, they're probably ready, but you'll need to be careful so you don't waste your time or drive them away never to return.
- Do they have a down payment in disposable cash or convertible assets?
- How is their credit?
- What is their current housing situation?
- What is their student debt situation?
- How will taking on a house payment compare to their current housing costs?
This process should help to build trust, as you're not just coming on with a sales pitch or the "it's always the right time to buy a home" thing. You're working with them to carefully assess their ability to buy and not regret the process. If it's not time, it's far more likely they'll come back to you when it is. If you get a good feeling that it's a good time for them, you won't have to sell them on buying. You'll just need to take them through the first-time home buyer stuff customized for their situation.
This Market Could Be the Best They'll See
It's not a hard sell at all to show the potential first time buyer that a market with low but rising home prices, low interest rates, and hungry builders and sellers is a good market to enter as a buyer. Do a conservative analysis of the difference in buying a couple of example homes at the current time compared to buying in a couple of years if rates rise a point or so and prices rise by single digit percentages.
Both of those are conservative estimates, though we can't predict market activity.
You're simply pointing out the possible influence of market conditions on their home mortgage if they wait. Sure, it could be offset by an increase in their income, but wouldn't it be nicer if that increase went to disposable income, rather than into housing.
Working with Millennials in the home buying process requires building trust. They have great technology skills, generally don't believe they need your help as much as their parents did. But, they're still first-time buyers, and they have the same doubts and concerns that group has always had on the financial and transaction side of the process. They're going to be a great resource if you work them right.