Millennials: The Next Gen New Home Buyer

Market Trends

Home prices are up 6.3% year over year according to the California Association of Realtors making it increasingly difficult for new home buyers to keep up with the down payment needed to be selected as the winning bidder on a new home. In fact, first-time home buyers accounted for approximately 40% of all buyers for years. However, in 2015, first time buyers made up fewer than 30% of the market share, according to the National Association of Realtors®.

The economic implications could be challenging as current homeowners are unable to sell their homes to move up and without move-up transactions, many retirees are unable to sell their homes to downsize.

With that being said, Millenials (ages 18 - 34) are expected to be the largest demographic of home buyers in 2016. They already represent 30% of the existing housing market and with increasing income and growing families they will be expected to further fuel the housing economy this year.

So what does a new home buyer need to know before they start down the path to new home ownership?

1. Good credit is key.

When it comes to getting your credit in order there has never been a better time than NOW. It can take two to three months for your credit to reflect any positive changes to the credit bureaus for making adjustments such as reducing your credit card debt or paying off a loan. It is always better to keep any credit balances below 50% of your limit.

2. Don't plan on getting selected for the first home you place an offer on.

Remember offers come in all shapes and sizes and no seller is the same. When offers are presented with less than a 20% down payment it is more likely to play second fiddle to a full price offer with a larger down payment. That is not to say you should not submit an offer with a 3% FHA loan. Work with your real estate agent to ensure that you are putting together the most competitive offer you can within reason for the property you are selecting. If there are repairs needed, etc. make sure you protect yourself and don't overlook anything that might cause you anxiety and expenses down the road.

3. When budgeting make sure you account for closing costs, HOA dues, property taxes, homeowner's insurance, and in some cases property mortgage insurance (PMI).

It can be tempting to ignore these additional expenses when you are budgeting your monthly expenses. But don't get in over your head. Make sure you can afford all of these additional costs in addition to your monthly mortgage. A good rule of thumb is for your monthly housing expenses to be no more than 30% of your current income.

4. Student Loans will not stop you from buying a home.

Student loan debt is not treated by lenders the same as credit card or revolving debt. The monthly expense will be added to your debt expense and factored in against your income. . A study out of Dartmouth revealed that there is only an extremely slight decrease in the probability for someone with student loans to own a home versus someone who has no loans at all. Only if somebody does not graduate and has student debt does it then have a significant impact on owning a home.

The bottom line: there are plenty of first-time buyers who want to purchase; unfortunately, it is not easy to succeed. The secret sauce to success is plenty of patience, tenacity, ingenuity (family pictures and a letter to the seller will go a long way), and a very sharp pencil so that an offer to purchase will stand out. It may take writing many offers, but, eventually, victory will come, and the first-time buyer will be handed the keys to their share of the American dream.