Millennials entered the housing market later than their baby boomer and Generation X predecessors. They chose to rent for longer, and are just now starting to flood the housing market.
But just because millennials have been slow to embrace homeownership doesn’t mean that they don’t have anything to teach others about buying a home. In fact, despite their late jump into the housing market, millennials have demonstrated plenty of smart home-buying behaviors. Here are a few smart homeownership habits we can all learn from this younger generation.
Ellie Mae, a software company that works with mortgage data, says that millennials — young adults from the ages of 18 to 34 — are currently the largest group of homebuyers in the housing market. According to the company, in January of 2017, these young buyers took out about 45 percent of all the mortgage loans used to buy homes. But homebuying is a recent trend for this age group.
Economists have long observed that millennials waited longer than older generations to jump into the housing market, just as they have also waited longer to get married and have families.
This isn’t necessarily a bad thing. Buying a home is expensive. You’ll need money for a down payment and the closing costs on your mortgage loan. This will run you thousands of dollars.
As millennials show, there’s nothing wrong with waiting until you have a more established job and reliable income to buy a home. Having that economic stability will eliminate some of the stress of covering that mortgage payment each month.
Don’t break your budget
You don’t want to overspend on a home. And today, that’s getting easier to do because housing prices continue to rise. The National Association of Realtors says that the median price for a home sold in March of 2017 hit $236,400. That’s an increase of 6.8 percent from March of 2016, when the median price was $221,400. This March also marked the 61st consecutive month in which home prices rose on a year-over-year basis.
One of the most often-cited reasons for millennials’ slow entry into the housing market is the student loan debt they face. According to Student Loan Hero, the average college graduate of the class of 2016 has $37,172 in student loan debt, up 6 percent from the previous year. Taking on the added debt burden of a mortgage can be intimidating when you already owe tens of thousands of dollars in student loans.
Millennials know about debt. It’s why so many of them are cautious about overspending. And this wariness is a good habit to acquire. Just because a mortgage lender approves you for a mortgage loan of $250,000, doesn’t mean you must buy a home costing that much. It’s OK — and is, in fact, fiscally smart — to buy a home that costs less. This will leave you with money leftover and an easier time making those housing payments each month.
Be realistic about the American dream
Buying a home has long been a part of the American dream. But millennials understand that this American dream can easily turn into a nightmare.
Many millennials saw their parents lose their jobs and struggle to make their mortgage payments during the Great Recession. Some saw their parents lose their homes to foreclosure. Others watched as their parents’ homes steadily lost value, leaving them underwater — owing more on their mortgage loans than what their homes were worth.
Millennials learned that buying a home wasn’t the only way to be happy in America. They learned that it could, in fact, be one way to be unhappy in America.
The good habit here is that you should never jump into owning a home just because everyone else seems to be doing it. Owning a home isn’t the right choice for everyone, which brings us to one last habit.
Don’t think that renting comes with a stigma
Millennials are less averse to renting apartments later in life than both baby boomers and Gen Xers. In fact, the apartment market around the country is in the middle of a boom, with more people of all ages choosing to rent instead of owning a home.
Renting has become a preferred way of living for a growing number of people. Need proof? Landlords keep increasing monthly rents to historic levels, something they’d struggle to do if the renters weren’t coming. Apartment company Abodo said that in March of this year, the median monthly rent of a one-bedroom apartment across the United States stood at $1,005.
In major cities, where many prefer to rent, monthly rents are especially high. Abodo reported that in San Francisco the median monthly rent stood at $3,415 in March 2017, while it hit $2,705 in New York City and $2,549 in San Jose, California. Other markets with high monthly rents include Boston ($2,398); Washington, D.C. ($2,097); Los Angeles ($2,030); and Oakland ($2,009).
If you prefer to rent — and you aren’t interested in the yard work and upkeep that come with owning a home — don’t feel pressured to make the move to owning. You’ll have plenty of company when it comes to renting an apartment.
This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website.
This article is from Wise Bread, not the Kiplinger editorial staff.