Millennials Recast the American Dream

America’s largest generation is in no rush to own a home. Meanwhile, they are renting in pricey places like Brooklyn, where there’s little chance to save for down payments. The bottom line is they seem hard-pressed to reach the homeownership levels of prior generations.

Mortgage Banking

July 2016

By Robert Stowe England


Note: See story as it appears in the print edition on pages 34 to 43 at this link.

Millennials are late to the homeownership party. Earlier generations bought their first home at younger ages than today’s population under the age of 35.

While millennials are also sometimes referred to as Gen Y, there is no official or widely-accepted definition for either millennials or Gen Y. In fact, the definition of what is a millennial varies.

Neil Howe and the late William Strauss are often credited with coining the term millennials to describe the age cohort born between 1982 and 2004, so named because this age cohort would be the first generation in American history to come of age or turn 18 after the advent of a new millennium.

Last year the U.S. Census Bureau defined millennials as those who were born between 1982 and 2000 in an announcement that the number of millennials (83.1 milllion) had surpassed the number of baby boomers (75.4 million) for the first time in 2014, thanks mostly to continued immigration to the U.S. by younger people. (While this definition was used in one study, there is still no official U.S. Census Bureau definition for millennials, according to a spokesperson for the agency.)

The Pew Research Center, Washington, D.C. defines millennials as those born between 1981 and 1997.

Observers throughout the mortgage, real estate and home-building industries, along with demographers who have studied this generation, expect them to more fully embrace homeownership later in their lives.

“In terms of the desire to achieve homeownership, they are no different than any previous generation,” says Douglas Duncan, chief economist at Fannie Mae.

Consistently, he notes, Fannie Mae monthly consumer surveys have found that more than 90 percent of millennials say they eventually want to own a home.

Survey data is “fairly consistent” on the widespread desire of millennials to become homeowners, including surveys of consumer preferences by the National Association of Home Builders (NAHB), Washington, D.C., according to Rob Dietz, NAHB chief economist.

“It suggests what while millennials are certainly renting in greater numbers now than prior generations at this age, they do have the same aspirations with respect to homeownership,” says Dietz.

For millennials it is all about delay.

“It appears that millennials are doing a lot of the traditional life milestones a little later in life, going to school a little bit longer, getting married a little bit later, having kids a little bit later, and then also buying a home a little bit later,” Dietz says.

The key question is whether or not millennials will eventually become homeowners at rates closer to those of earlier generations—but just later in life.

If they fall short of prior generational ownership rates, as many expect, how high will millennial homeownership rates ultimately go? A lot hinges on the answer to that question.

Urban lifestyles

A significant share of the Millennial Generation – especially college graduates with higher starting salaries--prefer to live in urban environments in the central business district of many of the nation’s largest cities.

Given the high cost of urban housing, this choice is more likely to favor renting over buying, according to Sherry Chris, president and chief executive officer of Better Homes and Gardens Real Estate, based in Madison, New Jersey.

In the Big Apple, 70 percent of households rent while only 30 percent are owners, she points out.

The preference of many millennials for urban living has led to revitalization of the borough of Brooklyn in New York City, according to Chris. “They’ve taken over old neighborhoods and completely changed the look and the feel of Brooklyn,” she says.

Millennials are likely to wait longer to buy a home, according to Sherry, because they want to be sure they can afford a home before taking the plunge and be sure they’ve found the location to meet their lifestyle and community preferences.

Chris believes the cautious and conservative approach to home buying displayed by millennials is driven by the fact that their outlook on life was shaped by a number of bad things when they were young--the terrorist attack on the World Trade Center in 2001, the 2008 financial crisis, the housing bust with mass foreclosures and a weak recovery that has so far provided incomes below that of prior generations.

Will a preference by some for urban lifestyles and conveniences, if sustained, ultimately reduce the level of homeownership achieved by this generation? Or will many of those living in cities, like generations before them, as time passes, also move to the suburbs to find affordable housing and more space for a family?

The answers will vary across the nation, as the suburban option may or may not be attractive in any given market.

Home builders, developers and investors in new-home construction are focused on understanding the future housing choices of millennials so they can make decisions about what to build and where to build in order to meet those needs.

More college degrees

In one respect, millennials have an advantage over prior generations--more of them have college degrees, especially women. According an analysis by the Economic Policy Institute of microdata from the U.S. Census Bureau’s 2015 Current Population Survey, 37 percent of women age 24 to 29 had earned a bachelor’s or an advanced degree.

By comparison, 31 percent of men age 24 to 29 had earned either a bachelor’s or postgraduate degree.

“That certainly suggests that they are going to have the capacity to become homeowners if they chose to,” says Lynn Fisher, vice president of research and economics for the Mortgage Bankers Association (MBA).

Fisher and her MBA colleague, Jamie Woodwell, vice president of commercial and multifamily real estate research, have published a report titled Housing Demand: Demographics and the Numbers Behind the Coming Multi-Million Increase in Households.

Fisher and Woodwell, citing forecasts by the U.S. Census Bureau, point out that household formation is poised to expand dramatically by as much as 15.9 million households by 2024. There will be as many as 5.5 million more Hispanic households, 2.4 million black households, 3.4 million non-Hispanic white households and 1.8 million Asian households, according to U.S. Census Bureau projections.

“It’s possible that with a more educated population we’ll see demand for smaller homes, to the extent they have fewer kids, get married later and both parties are working professionals,” says Fisher. That suggests a demand for smaller spaces and more services, she adds.

For college-educated millennial-headed households, living in the cities will be important, according to Fisher. “Probably one of the things we need to work on and be thinking about is the building and financing of condominiums for some of these groups,” says Fisher.

Ultimately, Fisher expects suburbs to play the dominant role. “I think there will be plenty of demand for the suburbs. As a nation, we are still growing more in the suburbs than in downtowns,” says Fisher.

In the end, there will be demand for a lot more new housing units in cities, suburbs and rural areas.

“We still need to think about building housing for all types of people--both single-family and multifamily. We’re going to need renter and owner-occupied suitable housing,” Fisher says.

Many wealthy, college-educated millennials will continue to favor living in the city, according to Fisher.

Housing footprint

So far, the millennial housing footprint has been modest, according to federal housing data.

In the 2014 American Community Survey --the most recent-- the U.S. Census Bureau found that those born between 1982 and 2000 made up 28 percent of the population that year. However, households headed by millennials represented only 17 percent of occupied housing units, including both renters and owners.

The millennial ownership footprint was even smaller. Only 8 percent of owner households were headed by millennials in 2014.

“As you can see from this data, there’s still a long way to go--both for owned and rented properties--in terms of the millennial influence on the market,” Fannie Mae’s Duncan says.

As more millennials enter the job market, that surge in rental demand is likely to increase, according to NAHB’s Dietz. “That’s one of the reasons our multifamily apartment builders have been doing well over the last couple of years,” he adds.

“Over the medium term, over the next few years, many of those renters will become homebuyers,” Dietz says.

When young people become homeowners, most will buy existing homes, according to Dietz.

Historically, he notes, about 70 percent of single-family new construction has been for the move-up buyer, with only 30 percent for first-time buyers. “Right now it’s running somewhat less than 20 percent,” Dietz says.

In fact, while inventory of existing and new homes is low, at the same time demand from millennials is weak by historic standards, according to Ted Jones, chief economist at Stewart Title Guaranty Co., Houston.

“In many places we don’t have effective demand from many of our millennials today,” Jones says, noting that while broadly speaking on a national level, inventory and demand are weak, the balance between the two varies widely by location across the nation.

Jones cites a study by the personal finance website ValuePenguin, New York, which identifies the best cities for young families. ValuePenguin evaluated 156 cities and ranked them on such things as commute time, real estate taxes, crime, economic strength, income as a multiple of rent, outdoor activities, hospital rankings, school ratings and other factors.

ValuePenguin’s top five cities with attributes that appeal to millennials are, in the order of their ranking, Austin, Texas; Houston; Raleigh, North Carolina; Des Moines, Iowa; and Dallas.

Biggest homebuyers

While millennials have a modest profile when looking at overall homeownership rates, they are already dominating recent home buying, taking 35 percent of recent home purchases, according to the Chicago-based National Association of Realtors®’ (NAR’s) Home Buyer and Seller Generational Trends Report 2016.

NAR’s survey, conducted last July, was sent to homebuyers who had purchased either an existing or new home in the prior 12 months.

The 35 percent share of recent purchases by millennials, which the NAR defines as those born between 1980 and 1997, makes them the largest single segment of the home-buying market for the first time, according to NAR.

By comparison, baby boomer householders (those born between 1946 and 1964) purchased 31 percent of recently sold homes and Generation X, which NAR defines as those born between 1965 and 1979) bought 25 percent of homes, according to NAR.

NAR found that 51 percent of millennials who bought homes last year purchased in the suburbs, according to Jessica Lautz, managing director of survey research at NAR. Only 17 percent of millennial homebuyers bought a home in an urban area.

The detached single-family house was the choice of 84 percent of millennials who purchased a house in the past 12 months, according to NAR, while 7 percent purchased a town house or row house. In addition, 3 percent bought a condo or duplex while 6 percent bought a mobile home or cabin.

The median home price for homes purchased in the prior 12 months by millennials was $187,400 and the average size of the house was 1,720 square feet, according to NAR.

The preference for less expensive homes has pushed down inventory at the lower price levels. “Even if millennials wanted to buy in city centers, there’s not a lot of affordable stock for them to purchase,” Lautz says.

Lautz expects millennial homebuyer’s share of home sales will steadily grow from present levels.

Millennials’ choices move markets

As millennials gravitate toward homeownership in greater numbers, their choices will matter because there are so many of them. And their ranks are continuing to grow through immigration.

If you add up all those born between 1982 and 2000, you have a population of 83.1 million people in 2014, according to the U.S. Census Bureau. That represented 27 percent of the estimated U.S. population of 306.8 million in that year.

Millennials are far more ethnically diverse than earlier generations, with 44.2 percent of them classified by the Census Bureau as racial and ethnic minorities, including Hispanic whites, while 55.8 percent are non-Hispanic whites. By contrast, 21.7 percent of baby boomers are minorities.

Hispanics and African Americans have historically had lower homeownership rates. In the first quarter of 2016, for example, non-Hispanic whites reported a 72 percent ownership rate, according to the Census Bureau, By contrast, only 41.5 percent of black households and 45.3 percent of Hispanic households owned their own home.

Asians, Hawaiians and Pacific Islanders as a group have a homeownership rate of 53 percent, according to the Census Bureau, which lumps these population segments together in its estimates.

In the coming years as the population becomes even more diverse, if historical patterns hold for various ethnic populations, it may translate into lower overall homeownership rates for the nation.

Pew Research Center forecasts that continued immigration will push up the population of the Millennial Generation, which is defines as those born between 1981 and 1997 from 75.4 millennials in 2015 to a peak of 81.1 million in 2036.

By one of the broader definitions of millennials--those born between 1980 and 2000--the total population is 91.73 million people.

Lagging incomes

Lower median incomes for millennails are partially responsible for lower homeownership rates, according to Fannie Mae’s Duncan. “Their real incomes are significantly lower than the same age group a decade ago,” he adds.

Part of the reason is that many went back to school for further education rather than take a lower-paying job during the financial crisis and the weak recovery that followed.

“The question is, do we see income growth ahead? If we do, it gives them the potential to catch up,” says Duncan.

It should be no surprise that 36 percent of young renters aged 25 to 34 told Fannie Mae in a 2015 survey that making themselves financially ready to own is the primary reason they currently rent. Only 22 percent, however, said in the same survey that renting is a more affordable option than owning.

The biggest obstacle is accumulating a down payment, according to NAHB’s Dietz. “To accumulate a down payment, you need stability in a job—which, from an economic perspective, means we need more job creation for those 35 and under,” he says.

“Wage gains would help,” Dietz adds. However, there is scant evidence that millennial median incomes are improving.

For households under age 35, the Federal Reserve’s most recent Survey of Consumer Finances found that the median household income was $35,300 in 2013. In 2001, by comparison, it was $43,900 in constant 2013 dollars. That’s a substantial, if not disturbing, 20 percent decline in real earnings for people in this age bracket.

Down payment and credit score

Difficulty in obtaining a mortgage still ranks as a chief concern for renters aged 25 to 34. In the first quarter of 2016, 57 percent of renters identified this as an obstacle to homeownership in Fannie Mae housing surveys.

Slightly fewer, 45 percent, identified an insufficient credit score or credit history as an obstacle.

Stewart Title’s Jones says that poor FICO® scores are definitely a problem. “A large number of millennials’ credit scores prevent them from owning a home in their current financial situation,” he says.

The credit scores for young potential homebuyers vary widely from market to market, Jones says. A study in March 2016 by LendingTree, Charlotte, North Carolina, found that Boston was the No. 1 home purchase market for millennials. More than half (52.5 percent) of all home purchases in Boston that were financed with a mortgage were purchased by homebuyers aged 35 and under with an average credit score of 727.

College debt

Heavy college debt is often partly blamed for the low homeownership rates for people 35 and under. Total student debt reached $1.35 trillion in the first quarter of 2016, a new all-time high, according to the Federal Reserve. Today’s college graduates have more debt than did those from a decade ago.

In 2014, 69 percent of students graduated from college with debt. Their average debt was $28,950, according to the Project on Student Debt sponsored by the Institute for College Access and Success, Oakland, California.

A decade earlier, in 2004, by comparison, a somewhat lower 65 percent of students graduated with debt and the average debt was much lower at $18,550.

Even so, only 19 percent of renters aged 25 to 34 identified having too much existing debt as an obstacle to obtaining a mortgage in Fannie Mae housing surveys during the first quarter of 2016. The same share, 19 percent, identified the ability to afford the monthly mortgage payment as an obstacle.

Inventory shortage

Millennials are also entering the home-buying market at a time when there is a shortage of housing, both existing housing and new construction, which is pushing up home prices. This is slowing the path to homeownership by pushing affordability further and further away.

Total existing-home inventory for sale at the end of April 2016 increased 9.2 percent to 2.14 million existing homes available for sale. The unsold inventory represents 4.7 months’ supply of existing homes at the current sales pace.

The median price for existing-home sales was $232,500 in March 2016, up 6.3 percent from April 2015’s median of $218,700.

The months supply of inventory of new homes is very similar to that for existing homes. Further, prices of new homes were sharply above those of existing homes. The unsold inventory of 243,000 new homes at the end of March 2016 represented 4.7 months of supply at the current sales pace, according to the Census Bureau.

The median price for new single-family houses was $321,100 in March 216, up 8 percent from the median of $297,300 in April 2015.

Living with parents

If they do not rent or own, where do millennials live? Some, of course, are living in college dorms. Some are in the military. But many are living at home as adults in higher numbers than a decade ago for the same age group. That’s the finding of Seattle-based Zillow, in its May 2016 analysis of data from the Census Bureau’s American Community Survey.

In 2014, the most recent available data, 21 percent of people aged 24 to 34 lived with their mom. By comparison, only 13 percent of the same age group lived with their mom in 2005. (This study counted only those living with their mother, which includes those living with both parents but not those living only with their father.)

In expensive rental markets, the share of young adult children living with mom was found to be higher--30 percent in the New York metropolitan area and 31.2 percent in the Los Angeles metro area, according to Zillow.

More are living with parents because they are being priced out of the rental market as rents continue to rise, reaching a national average of $1,342 a month in the first quarter of 2016, according to Zillow.

The Pew Research Center found in a study of Census Bureau data last year that even though unemployment declined and incomes marginally increased last year, the share of people under age 30 living with their parents rose.

The share of young adults living independently fell from 71 percent in 2007 to 67 percent in 2015, according to Pew’s analysis of census data. This excludes full-time college students.

“In fact, the nation’s 18-to-34-year-olds are less likely to be living independently of their families and establishing their own households today than they were in the depths of the Great Recession,” wrote Richard Fry, a senior writer at the Pew Research Center, last July.

Based on available historical data, a greater share of adult children aged 18 to 34 lived at home than at any point in available records going back to 1880, according to a June 2016 analysis by Pew Research Center. In fact, more adult children under the age of 35 were living at home – 32.1 percent – than the share living with a spouse or romantic partner, 31.6 percent.

The Pew Research Center’s 2015 study also found that while the population of young adults rose from 59.8 million in 2007 to 62.8 million in 2015, the number of households run by young adults remained flat: 25.2 million in 2007 and 25.0 million in 2015.

To the extent that millennials live with their parents and have a good job, it can help them pay down student debt and save more before they decide to put down roots and eventually become homeowners.

Urban or suburban?

A recent study concludes that college-educated millennials who prefer to live in downtown urban areas are revitalizing the urban core of the nation’s largest cities.

The 65-page paper published in November 2015 is titled Urban Revival in America, 2000 to 2010. Victor Couture, assistant professor of real estate at the University of California at Berkeley’s Haas School of Business; and Jessie Handbury, assistant professor of real estate at the Wharton School at the University of Pennsylvania authored the study.

Couture and Handbury found that between 2000 and 2010, substantial numbers of 25-to-44-year-old, college-educated Americans crowded into the downtowns of the 50 largest cities. Their arrival increased the population of downtown residential neighborhoods in these cities at a rate three times faster than the population growth rates in the suburbs. This has led to a revival of central urban districts in the nation’s largest cities.

The migration of young, college-educated households into central cities has had a magnified effect because it has occurred on top of a relatively small slice of the overall population. The population of downtowns in the 50 largest cities was only 5 percent of the overall U.S. population.

The authors also found that older and non-college-educated people are expanding the population in the nation’s suburbs. “Not everyone is college-educated. Plenty of millennials will have to seek the suburbs for affordability reasons,” says MBA’s Fisher.

Historic census data show that residing in downtown areas has long been attractive to a number of single people and childless couples. Given that millennials are forming single households and many are delaying marriage and having children, their lifestyle preferences favor downtown areas.

While the decision to have children is happening later, it is also pushing married households toward the suburbs when it does finally happen, according to Couture and Handbury.

Couture and Handbury found that household formation trends for people aged 35 to 44 “clearly favor the suburbs” because that population segment was more likely to have children in 2010 than did the population of 35 to 44 year olds in 2000.

While many members of the Millennial Generation prefer the amenities of the urban lifestyle, they change that view once they are married and decide to have children. Even so, the desire to have children and the desire to find a larger and more affordable home will continue to favor the suburbs, according to Couture and Handbury.

Not everyone, of course, will move to the suburbs when they get married. “I think there will be some who choose to stay in the city because they want the amenities and they will figure out how to raise kids there,” says Fisher.

This will be the case in part because children require a lot of time and attention and need good schools, she explains. Often in urban areas this will mean choosing private schools, which can be costly; while in the suburbs, parents can steer the home purchase to neighborhoods with good public schools.

The evidence that millennials want to remain in the city after they become parents can be seen even in the priciest markets. “Manhattan and Brooklyn are crawling with kids,” says Todd Zimmerman, co-managing director of Zimmerman Volk Associates, a real estate consulting firm based in Clinton, New Jersey.

Zimmerman and co-managing director Laurie Volk foresaw at the turn of the century that rising numbers of young millennials and older boomer empty nesters would embrace walkable urban environments. Those preference were driven by a desire to live “where community is more important than privacy,” says Zimmerman.

Those who remain in the city, however, have to be able to afford private schools--which further reduces the number of millennial parents who can afford urban markets.

Some will avoid starter homes that may be far from the urban center. They will instead continue to save until they can move up to homes in suburbs that are closer to the city center--existing homes or new construction, according to MBA’s Fisher.

Also, because millennials are staying in school longer, they are likely to start their careers with higher incomes that will allow them to afford homes in higher price brackets closer to the urban center, notes Fisher.

Preference for flexibility

Figuring out new-home construction targeted at millennials will require home builders to better understand how the generation is recasting the American dream.

The desire for flexibility is key, according to John Burns, chief executive officer of John Burns Real Estate Consulting LLC, an Irvine, California-based firm that advises home builders. “This group wants to own, but they have no urgency,” he says.

Millennials have come of age at a time of anemic economic growth over the last 15 years. “It’s actually closer to the growth of the 1930s than any decade since then,” Burns notes.

The job market has also changed in ways that make millennials more cautious than prior generations, he adds. “People no longer go to one company and stay there a long time. They job-hop quite a bit,” Burns says. “A lot of that is employer-driven, because employers will now start laying people off after two bad quarters and people know that.”

Because job security is less common than it was for prior generations, “there’s a real reticence to commit to a 30-year mortgage, I believe,” Burns says.

The formation of a family may not, in fact, lead millennial couples to want to become homeowners. “A lot of older millennials who have families are opting to rent for flexibility reasons,” Burns says.

Millennials do not want to spend a lot of time commuting because they value their time, according Burns. “More are willing to give up square footage or a yard in order to save time,” he says.

“Surban” living

Millennials are, in fact, creating a new style of living that “brings the best of urban living to the suburbs,” Burns contends. His consulting firm has coined the word “surban” (and filed paperwork to trademark the term) to define the practice of bringing urban amenities to suburbs where residents can walk to many amenities, just as they can in urban communities.

“Small cities are redeveloping their downtown areas, cleaning it up and getting some nightlife,” says Burns. They are granting approval to higher-density rental and ownership housing within walking distance to downtown and its amenities,” he says.

“So most [of] our home-builder clients are really selling entry-level homes at $200,000-plus to the most affluent first-time homebuyers,” Burns says.

Those prices are affordable to a lot of millennial couples who have married later and had children later in their 30s, when their incomes are higher.

Burns points to the example of Larkspur, California, in Marin County, north of San Francisco. The New Home Company, Aliso Viejo, California, is building pricey high-density, smaller, single-family detached homes within walking distance of downtown Larkspur.

Rising costs of new development

Steadily rising land and building costs are working to price millennials out of the new-home construction market, driven in great part by regulation, building permits and fees, according to Burns.

Researchers at John Burns Real Estate Consulting surveyed 100 home builders to get a measure of the cost of regulations, permits, fees and the long delays that come with the slow approval process. While a lot of the costs come from rules imposed federally by the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers, “a lot of it is local,” Burns says.

It all means that builders in many locations cannot build $200,000 homes profitability after covering the regulatory costs, according to Burns.

The National Association of Home Builders in May estimated that regulations imposed by government at all levels account for 24.3 percent of the final price of a newly built single-family house.

In the last five years, the average regulatory costs incurred while developing a lot and building a single-family home rose 29.8 percent from $65,224 to $84,671, according to NAHB. During the same time, the nation’s disposable personal income per capita rose only 14.4 percent, putting the cost of buying a new home further out of reach for many households, according to NAHB.

“When it comes down to it, affordable housing really is resale homes. Those are cheaper than new,” Burns says. “I just don’t think it’s really possible to look at new homes anymore to solve the affordable-housing problem,” he adds.

As home builders provide new more expensive homes to the market, it brings more resale supply to the market because usually people have to sell an existing homes they own in order to buy a newly built move-up home. “That keeps all homes priced a little more affordably, including resale homes. I think that’s how you get it solved,” says Burns.

Investment returns

As home prices rise and bring a slowdown in the pace of sales, it can make development of new owner-occupied, single-family home projects less attractive as investments, according to G. U. Krueger, president and chief economist at the consulting firm Krueger Economics, Los Angeles, which advises home builders and pension funds.

Krueger researched 100 cities in the Golden State for their potential attractiveness as sites for new-home construction and ranked them on their potential return on investment for his clients. Initially his work for clients led home builders to cities they had never considered and “helped home builders a lot, at least in the initial stage of the housing recovery,” Krueger adds.

Now, with price levels rising in California, the absorption rate--or pace at which homes are sold and built – is beginning to drop, undermining the profitability of new-home building projects.

New single-family projects require a lot of money upfront, and a slow pace for sales delays the time when a developer begins to earn a return. “If that is slow, it doesn’t matter how high the profit margin is--it is not that attractive for investors because you cannot sell fast enough,” Krueger says.

Pension funds are beginning to move away from ownership housing to apartment rental buildings because of the declining rate of return on single-family home construction for sale to owner-occupants, according to Krueger. That is true in part because when apartment buildings are completed and occupied, they immediately produce a cash flow.

“Builders are kind of abandoning ownership housing projects basically for one of the largest age cohorts in the history of the United States,” Krueger says.

If millennials are to become homeowners in greater numbers, developers and home builders are going to need to come up with innovative ideas that can provide affordable housing for the masses, Krueger contends.

Outlook for ownership

John Burns Real Estate Consulting has studied a wide range of factors that have been affecting the ability of Gen X and the Millennial Generation to match the high homeownership levels achieved by prior generations by age 38.

“Right now the millennials are way behind,” Burns says. So is Gen X. People born in the 1970s, who are 36 to 45 today, have a 6 percent lower homeownership rate than the generation before them. “It’s a huge gap,” Burns says.

Those born in the 1970s went through heavy foreclosures because a lot of them bought their home right before the housing downturn. “The millennials saw what happened and said, ‘Hey, I don’t want that happening to me,’” Burns says.

By the age of 38, Burns estimates 57 percent of the segment of millennial householders born in the 1980s will have achieved homeownership. This is higher than the 55.2 percent ownership at age 38 for the segment of Gen X’ers born in the 1970s.

The highest levels of homeownership at age 38 of living generations was 71.2 percent achieved by those born during the 1940s, which includes the oldest baby boomers and youngest members of the so-called Silent Generation.

Will millennnials make up for lost time in terms of homeownership? Or will they remain permanently behind when compared with prior generations?

“We won’t know, but I think a key indicator will be whether real income growth for that group accelerates,” says Fannie Mae’s Duncan.

For right now, millennials are falling short of the pace of prior generations. “So the question is, do we see real income accelerate? If it does, it gives them the potential to catch up,” Duncan says.





Building for Millennials

It is a paradox. On one hand, only 9 percent of millennials who purchase a home buy a newly built home, according to the U.S. Census Bureau’s 2013 American Housing Survey. Yet, the tastes and preferences of millennials are already a major force in new-home construction, both in style and features provided, as well as home builder decisions on where they will build.

The sheer size of the millennial age cohort--the largest generation in American history--is one reason young people are having an impact on new-home construction.

“It’s clearly a market segment that we are keenly interested in and a key contributor to our business for years to come,” says Jay Mason, vice president of strategy at Atlanta-based PulteGroup Inc., the nation’s third-largest home builder last year and one that operates under a number of brands.

Millennials already represent 30 percent of Pulte’s business with about 10 percent of its current projects aimed at this market segment, according to Mason.

Pulte is constructing new homes for millennials in both urban infill locations and in the suburbs. “We’ve found that while millennials want to live in an urban environment, the tendency is to be pushed to the suburbs,” says Mason.

In more expensive cities, not surprisingly, young people are more likely to find a new home to purchase in the suburbs as they seek to find a balance between location, affordability and home product, according to Mason.

Pulte Homes, subsidiary of PulteGroup, will soon be offering new single-family homes from 1,600 to 2,100 square feet at a new urban infill project in Hollister Oaks in Houston. The homes, which will be priced starting in the $300,000s, will be detached and 30 feet wide--narrower than most new suburban homes. Pulte is preserving the mature oak trees at the development site, which will have a park and a green space for walking.

Close-in suburbs are another favorite for millennials, Pulte has found. New homes at the Alstead development in Roswell, Georgia, a close-in suburb north of Atlanta, are being built to appeal to millennials by John Wieland Homes and Neighborhoods, one of Pulte’s home builder brands. Alstead features single-family and town homes with “an urban feel” in home design and the community, according to Mason. Models are priced from $398,000 to $555,000.

Home builders that are selling more expensive homes to millennials are responding to the fact that many who are ready to purchase their first home are buying a move-up home rather than a starter home, according to Mitch Levinson, managing partner at mRELEVANCE, a marketing consulting firm based in Arlington Heights, Illinois.

“Remember, they are coming from apartments that are decked out in granite countertops and high-end finishes,” Levinson says. “So, they are waiting a little bit longer to get what they want. They’ve been waiting for the recession to pass. So, there’s a lot of pent-up demand.”

The American Housing Survey found that half of all houses purchased by millennials averaged less than 1,650 square feet and cost less than $148,500 in 2013. About 91 percent of those who purchased a home bought an existing older home with a median year built of 1975. The high cost of building new homes in many markets makes them out of reach for the vast majority of millennials ready to buy a home.

First-time homebuyers, mostly made up of millennials, have an average down payment of only 3.51 percent, according to data collected by the American Enterprise Institute’s International Center on Housing Risk, Washington, D.C.

As one might expect, millennials are more likely to find what they want in less expensive markets. One such market, Des Moines, Iowa, is both a destination for millennials as well as affordable, even for new-construction, single-family housing.

In 2015, for example, 59 percent of mortgage applications in Des Moines came from millennials, according to Move Inc., a Santa Clara, California-based company that hosts the Chicago-based National Association of Realtor®’s website That’s the highest share of any major market.

Hubbell Homes, a division of Hubbell Realty Company, West Des Moines, Iowa, is already seeing millennials dominate sales for new-home construction in some of its new construction projects, according to Rachel Flint, vice president for marketing and communications.

Artisan Row by Hubbell in downtown Des Moines opened last year with 27 town homes with a sleek, contemporary design with prices starting at $275,000. “Over 50 percent of the Artisan Row homes were sold to millennials,” says Flint. The town homes feature roof gardens, which appeal to millennials who value flexible outdoor spaces as one of the top qualities they look for in a home, according to Flint.

In some markets with lower home-building costs, millennials are flocking to snap up new homes at prices they can afford. One such market is Boiling Springs, South Carolina, where new homes are being built by Enchanted Construction Service, an upstate home builder based in Campobello, South Carolina.

Enchanted Construction is building starter homes with three bedrooms and two baths in Boiling Springs and other areas near Spartanburg, South Carolina. In many of those developments, buyers are eligible for 100 percent rural housing financing guaranteed by the U.S. Department of Agriculture (USDA). In those USDA neighborhoods where new homes can be built starting in the $130,000s, “somewhere between 40 [percent] to 50 percent of the buyers are millennials,” says Josh Allen, realtor® at Allen & Associates Real Estate, Boiling Springs, South Carolina, the listing agent for new homes by Enchanted Construction.

“Millennials can buy here with as little as $500 in earnest money and have a mortgage payment less than the cost of renting,” says Allen, himself a millennial working for his father, David Allen, at the family-owned business.

Even slightly higher prices can quickly curtail the share of millennials who can buy a new home. For example, at the Glen Lake neighborhood in Boiling Springs, where prices start in the $160,000s, millennials represent 25 percent of the new-home buyers--about half the share at communities starting at $130,000, according to Allen.

Few home builders may be able to top the millennial focus found at Rausch Coleman Development Group Inc., Fayetteville, Arkansas, which sells up to 90 percent of its homes to millennials at some of its projects in central and northwest Arkansas, as well as in Oklahoma City and Tulsa, Oklahoma; Austin, Texas; and Kansas City, Missouri, and Kansas City, Kansas.

“We are a true first-time homebuyer product. We are not super-fancy. We do not have a lot of amenities,” says Jeanne Conger, executive vice president of sales at Rausch Coleman Homes, a subsidiary of Rausch Coleman Development Group. “Millennials are naturally our target market,” she says.

Rausch Coleman offers basic new homes at $110,000 for most of its markets--but in the higher-priced San Antonio, Texas, market, basic homes start at $185,000, according to Conger.

“We start out with a base-level home and buyers can choose what they want to pay for to add on to the basic home,” Conger explains, which gives the buyers more control over both the affordability of the product and the level of features that fit their budgets. For example, a fireplace is an option that can add $3,000 to the cost of a new home, pushing up the new-home price. Rausch Coleman has found that less than 20 percent buy a fireplace when it is offered as an option.

“The price point has shifted so much due to cost of land, infrastructure, green building, government requirements on what has to go into the home. So affordable housing in many metropolitan markets is non-existent,” says Conger.



Smaller Houses and Whole Towns

Some developers and home builders have discovered that one way to bring more affordable homes to millennials is to build smaller houses tailored to millennial environmental sensibilities and build them around a new town center in the suburbs with the amenities and sense of community many young people prefer.

Smaller houses will be one of the key home buyer options in Pinewood Forrest, a residential development to be built around a mixed-use town center on a 234-acre tract of farmland and woodland near Fayetteville, Georgia, 25 miles south of downtown Atlanta.

“We’re largely targeting millennials,” says architect and town planner Lew Oliver, design director at Lew Oliver Inc., Whole Town Solutions, Roswell, Georgia. He is designing homes for Pinewood Forrest, which is adjacent to the Pinewood Atlanta Studios, a major movie production facility on a 288-acre campus.

The town of Pinewood Forrest will have a hotel and a village square with street-level retail stores, a wellness and fitness center, and lots of green spaces--all connected by 15 miles of paths and multi-use trails, according to the developer, Pinewood Forrest LLC, Fayetteville, Georgia. The center is designed to be “a magnet for ambitious doers in entertainment, the arts and business,” according to a spokesperson for the project.

Dubbed the Hollywood of the South, Pinewood Atlanta Studios was launched in 2013 as a joint venture between Pinewood Group plc, Buckinghamshire, England, the storied studio for James Bond movies and many other great films, and River’s Rock LLC, Fayetteville, Georgia--a family trust of the Cathy family, which owns the Chick-fil-A restaurant chain, headed by Dan Cathy, chairman, president and chief executive officer.

People who work at Pinewood Atlanta Studios will be able to live nearby to where they work. And so will employees for a planned 44-acre Media Park that will provide 198,000 square feet of warehouses and 24,000 square feet of office space near the Pinewood studio’s production center, according to the master plan presented last year to Fayetteville city officials.

The single-family residences in Pinewood Forrest will offer two- and three-bedroom homes with no garages and open interior living spaces from 850 square feet to 1,500 square feet--much smaller than most new-house designs. The goal is to be able to offer some of the homes starting from the $200,000s, according to Oliver.

The design of the houses in Pinewood Forrest will echo historic exterior architectural design forms, according to Oliver.

Oliver believes the houses will appeal to millennials. “They don’t have the same aspirations as their parents. They know that materialism is not an end in and of itself,” he says.

There will, however, be a range of housing types for all generations in the development, from larger, expensive homes to more affordable homes--1,242 residences in all, according to the developer. In addition to single-family homes, there will be town homes, multifamily flats, tree homes and clusters of smaller homes designed for a community of retirees.

Oliver is one of the pioneers of the micro house movement and has trademarked the name Nest™ for what he calls his “eco cottage” designs for new, energy-efficient homes with smaller carbon footprints.

Oliver previously designed smaller houses for a new whole community built around Serenbe Farms in Palmetto, Georgia, in the Chattahoochee Hill Country south of Atlanta. The micro house movement has come a long way, according to Oliver. “Now we’re at the point where we know how to design them, build them and deliver them into a land plan,” he says.


Robert Stowe England is an independent writer based in Milton, Delaware and New York, New York, and author of Black Box Casino: How Wall Street’s Risky Shadow Banking Crashed Global Finance, published by Praeger and available at He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Copyright © 2016 by Mortgage Banking Magazine.

Reprinted By Permission.



Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

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