Though 2015 was dubbed the Year of the Millennial, though the final sales data are not yet in, actual purchases by young first-time buyers disappointed many real estate observers.
Between July 2014 and June 2015. first–time buyers declined to 32 percent (33 percent a year ago), which is the second–lowest share since the survey’s inception (1981) and the lowest since 1987 (30 percent), according to the National Association of Realtors’ 2015 Home Buyer and Seller profile, Through October, NAR’s Realtor Confidence Index reported sales to first-time buyers had fallen even more, to only a 30 percent share.
Though the current data is bad, Millennial purchase levels have actually improved. In mid-December, the Census Bureau’s American Community Survey reported that the number of homeowners aged 25-34 fell by more than 250,000 in each year between 2007 and 2012, but has declined to a level of less than 100,000 annually through 2014.
Yet expectations are much higher than results to date. For example, a December NAR survey found that 94 percent of renters under the age of 34 aspire to be homeowners “someday”, a finding that echoes similar research by Fannie Mae, Zillow, the Pew Center and others.
Among the many hurdles facing young buyers—lending standards, rising prices, slim to no affordable inventory, income that is still not age-appropriate, crippling levels student loan debt consumer debt—perhaps the greatest is simply cash. Like most generations before them, Millennials are struggling to raise the cash requirements for down payments and closing costs.
One reason is a phenomenon I called the Rent Trap in an article for Inman News Service last year and re-published on Real Estate Economy Watch. (See How the Rent Trap is Killing off First-time Buyers.) Simply put, rather than driving first-timers to buy, soaring rents are sucking up a substantial portion of their disposable income, keeping them trapped in rentals longer than they planned. The longer they wait, the higher rents rise, extending their waiting period. The Rent Trap which may be one of the most pervasive but least understood reasons that Millennials are aging in place in rental housing.