Will Millennials move to the suburbs and buy houses?
Millennials will enter the housing market as first-time homebuyers over the next several years, but likely in smaller numbers than previous generations.
The Millennial generation is larger than the Baby Boomer generation, and Millennials are entering the stage in their lifecycles when people typically buy homes; therefore, the biggest component of housing demand over the next 20 years will likely be Millennial buyers. This is why the buying behavior of Millennials gains so much attention among homebuilders.
So far Millennials have not entered the housing market in large numbers. (See: Why aren’t Millennials buying homes?) Most analysts point to excessive student loan debt, high unemployment, low wages, and delayed marriage (probably as a result of the previous three issues) as primary reasons Millennials aren’t buying homes — at least not yet.
Periodically, reporters entreat us with stories about how Millennials are buying homes now, yet despite these reports, home sales continue to languish, prompting some to ask what will happen if Millennials don’t become a generation of homebuyers.
In my opinion, Millennials will rent at higher rates than previous generations. For structural reasons outlined above, Millennials don’t have the financial resources to buy homes, and forecasts are that Millennials won’t qualify for mortgages until 2019 at the earliest. Also, as I’ve noted in many posts, the reflation of the old housing bubble has pushed prices up so high that many Millennials can’t afford them.
Millennials witnessed the collapse of house prices, and they saw the impact it had on the previous generation; therefore, they are far less susceptible to kool-aid intoxication and much less likely to buy houses for foolish financial reasons.
This isn’t to say Millenials won’t buy homes; they will, but the percentage of Millennials who end up owning homes will be lower than previous generations — they will still be the major driver of housing demand — but they won’t necessarily want to own single-family homes in the suburbs to the same degree their parents did.
Or will they?
MONEY writer and first-time dad Taylor Tepper announces his retirement from urban living.
Renters in New York City have a uniquely dysfunctional relationship with real estate: The more time we spend living in some of the most desirable housing in the world, the less happy we become. Or maybe that’s just me.
My wife and I pay $2,100 a month for what seems like two square feet and minimal natural light in a converted hospital in a cool Brooklyn neighborhood. There’s an artisanal pizza shop, hole-in-the-wall cafe, and kid-friendly beer garden right around the block. I’m a 15-minute walk from a major metropolitan museum, botanical gardens, and the best park in all of New York. When it’s warm I bike, toss the frisbee, and drink whisky on rooftops. The beach is only 30 minutes away.
When people are young and they don’t have children, they appreciate the conveniences of urban cores, but when they start raising children, they appreciate the suburban environment even more. I believe Millennials will move the suburbs like previous generations did, but when they get there, they may chose to rent instead, particularly since so many single-family detached homes in nice neighborhoods are now available to rent.
Unfortunately, warmth doesn’t last forever, and when it gets cold outside—say, from Thanksgiving to Easter—I spend more time indoors. Which means I’m trapped with a 21-pound baby monster who smashes, grabs, and pounds anything he can get his hands on, from cellphones to lamps. As a result, I’m slowly devolving into madness. Spending hours upon hours inside with two other people, only one of whom yields to reason, punctuated by intermittent excursions into tundra-like conditions, makes it seem as if the walls are slowly inching in on themselves.
Don’t get me wrong—I love the city, I went to school in New York, I’ve lived here for almost the entirety of my adult life. But after 13 months as a father and 19 months as a husband, I’m ready to escape to the land of malls and carpool lanes, single-unit houses and trees, the land of my birth: suburbia.
That said, it’s one thing to want move, it’s another to actually do it. Here’s a window into my thought process—and that of other millennials facing the same decision.
We’d Still Be Renters
Years of high rent and monthly student loan bills, combined with the cost of childcare, made it next to impossible for us to save up for a down payment. So we’re looking to rent wherever we go, which should mean more money left over for us. …
Even if we had enough funds stashed in our joint bank account, there are a couple of reasons why a home purchase would be a poor move. For one, conventional wisdom states that your target property should be no more than two and a half times your gross income. The odds that we’d find a New York-area home in the $300,000 range that’d we’d actually want to live in are low. …
I last owned my personal residence when I lived in Florida. I built an 1,800 SF 4/2 on a 17,000 SF lot. I sold it for $117,000 when I left in 2000. When I arrived in California and looked at what was available for sale, the lowest priced single-family detatched property I saw was a run down 900 SF 2/2 in a bad part of town for $180,000. I quickly realized I would be renting for a while.
The Costs of CommutingRight now I pay $112 a month (soon to be $116) for a 30-day subway pass to get to the office. We are only a 20-minute drive from my wife’s work, which means we shell out a very reasonable $50 a month on gas. When we move to the suburbs we will pay more. For the sake of argument, let’s say that we end up relocating to Pelham, New York, just north of the city. My monthly bill rises to $222, while my wife’s morning drive will consume almost twice as much gasoline, meaning our monthly outlay will jump by about $160.
But that’s just the money. The time we spend going from home to work and back will grow as well. Doing some back of the envelope calculations, my in-transit time will increase by 10 minutes each way, while Mrs. Tepper will spend an additional 20 minutes or so in traffic. Combined we’ll endure about an hour more per day on our commute, which sends shivers down my spine.
There are a few positives about the longer commute, though. For one, car insurance is generally cheaper outside of the city. …
Getting older involves a series of decisions that have the net effect of limiting one’s personal freedom. … A life in one town is a life not lived in another.
Which is all to say that I’ll miss living in Brooklyn. Despite the hipster clichés, I really do enjoy artisanal, delicious, overpriced hamburgers and 17 different IPA varieties at my bars. I like walking everywhere, even if we have a car, and a touch of self-righteousness about your home is good for the soul.
But I think of my sojourn in New York’s best borough as I think of college: I wish I could stay forever, but it’s time to move on. …
We can have a backyard for our son and our dog and us. We’ll have a laundry machine on the premises, so we don’t have to lug 20 pounds of clothes a couple of blocks through the snow. We’ll have a full-size dishwasher.I proudly proclaim without regret what might have depressed my younger self: these amenities are more appealing than staying in Brooklyn.
Will all Millennials make the same decision? Will they leave the places they love for a house in a place they don’t?
What Millennials will do to the housing market
Right now the quantity of houses demanded by the market is very low as mortgage purchase originations stagnate at 30-year lows. Eventually, the Millennials will save for down payments, they will qualify for home loans, and they will buy houses, albeit at lower rates than previous generations. When the Millennials do buy, the mortgage purchase origination numbers will rise from their six-year holding pattern.
The implications of this will be most noticeable in the behavior of homebuilders. Right now, homebuilders almost exclusively provide move-up housing because the demand for first-time homebuying is so low. Builders will shift from providing move-up housing to first-time homebuyer housing. This will lower homebuilder price points, and it will also reduce the size of houses homebuilders supply.
The new urbanists will tout the smaller homes demanded by Millennials as confirmation of their biases, but in reality, homes will get smaller because Millennial first-time homebuyers can’t afford larger ones. Shrinking home sizes and lower price points will merely reflect the changing demographics of who homebuilders sell to.