According to the Demand Institute, an organization tracking how consumer demand is evolving around the world, released “Millennials and Their Homes: Still Seeking the American Dream.” It says the reports about the home-buying future of millennials are mostly myth.
There are 13.3 million households headed by millennials, but this number will swell to 21.6 million by 2018, and they will spend more than $2 trillion on rent and home purchases combined, according to the report. Over the next five years, millennials are predicted to spend $1.6 trillion on home purchases and $600 billion on rent.
More than 8 in 10 millennials already own or plan to own their own home someday. Sixty percent plan to purchase a home and 24 percent already do. And more than 70 percent believe ownership in an important long-term goal and an excellent investment.
Millennials still aspire to home ownership, but financing that dream has become more difficult, and they are seeking new ways to close the gap between aspiration and reality. Millennials show strong interest in less traditional housing options, such as the “lease-to-own” finance model and single-family rentals. Creating alternative mechanisms so that millennials also can achieve the American dream is a significant innovation opportunity in both the business and public sectors.
This is in line with the results from a recent study by Wells Fargo and Ipsos Public Affairs, “How America Views Homeownership.”
“Although the homebuying process has changed in many ways in recent years, our survey found Americans still view homeownership as an achievement to be proud of and many believe that now is a good time to buy a home,” said Franklin Codel, head of Wells Fargo Home Mortgage Production. “Our survey also suggests we have an opportunity as lenders, nonprofit agencies and real estate agents to better inform Americans about credit ratings, mortgage costs and housing affordability. This would help demystify the homebuying experience for many consumers.”
The survey said 82 percent of respondents said they understand how to manage their personal finances and 63 percent, including more than half of millennials, have a rainy day fund. However, although money savvy, many have misconceptions about what is needed to purchase a house.
Thirty percent of respondents believed only individuals with high incomes can obtain a mortgage, and 64 percent believed a “very good” credit score was necessary. Nearly half, 44 percent believe that a 20 percent down payment is required. In reality, a 20 percent down payment is not a requirement on many loan programs.
Millennials aren’t the only homebuyers concerned about coming up with the down payment. The same amount of respondents said they knew very little about closing costs required in buying a home.
“It is important for prospective homebuyers to feel empowered to ask lenders and real estate agents questions about available options, such as down payment assistance or FHA loan programs of VA loans for veterans,” Codel said. “Ninety-five percent of survey respondents said they want to own a home if they don’t already. Informing prospective homebuyers about their options is the first step toward helping them realize their goals.”