May 12th, 2014
While the dream of homeownership is alive and well in the U.S., many potential homebuyers of the millennial generation are more fond of renting.
According to CNBC, there are two reasons consumers in this group are not yet ready for homeownership: They don’t think they can get financing to purchase a home and want to have a flexible living arrangement. Although separate, the two reasons are interconnected, both stemming from recent economic changes.
While the housing recovery has renewed faith in the value of owning real estate, the benefits have been disproportionate. Home prices are rising fast, but employment figures for young adults have not yet caught up to home value inflation. This has led to fears by many millennials that they don’t have the credit or personal finances necessary to purchase a home.
Despite numerous reports that owning a home is more affordable than renting, most young-adult consumers lack the initial capital that lenders require to obtain financing. There’s also high student-loan debt holding back many college graduates from becoming a homeowner.
A mobile generation
As a result of tight employment conditions, millennial consumers like to be mobile. Rather than being tied down to one location, they want the ability to move where the jobs exist. In some cases, they simply want to move for the sake of a new living space.
“A lot of younger renters when they get out of college, they don’t want to settle anywhere, they want to find a job somewhere, stay there for a year, year and a half, and today a lot of younger people want to move around, even if not moving from city to city they are moving around the city,” Jonathan Eppers, CEO of RadPad, a company that provides a mobile app to help renters, told CNBC.
While down payment requirements and available credit continue to present obstacles for potential homebuyers of the millennial generation, many still look forward to purchasing a home in the future.
Jed Kolko, chief economist at Trulia, told The Fiscal Times that renting prior to ownership is the reality of the housing market for young adults in the U.S. After securing their first job out of college, they should expect to save for a while to get the down payment they need.
“It will take some time for young people who recently got a job to be able to purchase their first home,” Kolko said. “That’s the most important factor in the long term.”