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How the real estate industry can better serve the growing millennial market 

A recent panel discussion concluded that the industry, from lenders to agents, should take note: Millennials are a massive cohort with unique challenges.

March 3, 2023
4 minutes

Key points:

  • Millennials accounted for the biggest share of mortgage applications in 2022, at 54%.
  • However, they have a lower homeownership rate compared to previous generations during the same stage of life.
  • Millennials face different homebuying challenges, including lower financial literacy.

When it comes to real estate, we are squarely in the Age of the Millennial — a demographic with different attitudes and perspectives around homebuying than their elders.

In a March 2 webinar hosted by Freddie Mac and New American Funding — "Serving the Underserved: Millennials Dominating the Mortgage Market" — speakers discussed the characteristics of this generation and the homebuying challenges they face. While the homeownership rate for millennials is increasing, they still lag behind previous generations.

"We are not comfortable with the idea of homeownership, not just yet," said Nicholas Whiteside, student director for the Center for Financial Advancement at HomeFree-USA and one of the featured speakers.

Whiteside, who bought a home two months after graduating from Fisk University in 2021, pointed to a variety of challenges for millennials, including a need for more financial literacy.

"I achieved homeownership because I was prepared on the backend while I was going through college," Whiteside said.

While Whiteside was able to buy a home at a young age, many of his peers are not. Yana Davidovich, director of market research and insights at Freddie Mac, noted that the homeownership rate for millennials, who span the ages of 26-41, is at 51%. That's lower than the rate for Generation X (58%) and the baby boomers (54%) when they were in that age range.

Millennial homeownership delayed due to life choices, but on the rise

But millennials may be starting to catch up. Their homeownership rate has been increasing over the past three years and could continue to climb as more of them hit the peak homebuying age of 33. 

Despite their lower homeownership rate, millennials have accounted for the biggest share of mortgage applications for the past six years, according to CoreLogic, due to the sheer size of their cohort. Last year millennials were responsible for 54% of all mortgage applications.

Davidovich said millennials are hitting major life stages — like getting married and starting a family — later than earlier generations, so homeownership may simply be lagging a bit behind.

One factor in millennials' decision to delay marriage and family may be education. More millennials are pursuing college degrees and graduate school. Davidovich noted that 42% of millennials have at least a Bachelor's degree, compared to 31% for Generation X and 29% for boomers.

Geographic flexibility, racial diversity and self-employment among millennial traits

Millennials appear to be more willing to move to another part of the country in order to afford a home. Relocation has been an ongoing trend, spurred by the pandemic and the rise of work-from-home options. Washington state, Virginia and the Midwest topped the list of regions experiencing the most inbound millennial migration. 

But even if they have the ability to move to more affordable areas, Davidovich said millennials are dealing with other challenges unique to their generation, ones that the real estate industry, particularly lending, needs to address:

More diverse racial makeup: Millennials have a higher share of minorities in the U.S. compared to previous generations. Historically, minorities have had lower homeownership rates, so Davidovich suggests more needs to be done by financial institutions to provide solutions for people of color.

Working in the gig economy: Millennials account for the largest share of gig economy jobs, and being an independent contractor can make it more challenging to get a mortgage. More self-employed applicant solutions are needed, Davidovich said.

Financial literacy and down payment challenges: Even though millennials are more educated and have access to more online financial tools than ever before, many still lack financial literacy. The millennial generation also tends to have a lower savings rate, making a down payment more difficult.

Since millennials and the younger Generation Z have grown up with technology, the real estate industry needs to continue making the homebuying process quicker with better apps and other online products, said Whiteside.

"The main reason I believe millennials and Gen Z are opting to not buy homes right now is because there is not an instant gratification in it," Whiteside said. "They are not able to see the value of what's going to happen once they get in that home…. There are not enough resources of information or people helping them get comfortable with the idea of homeownership, and that's scaring them away."

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