CoreLogic: Affordability, Not Income, is Driving Millennial Purchases

A new analysis by CoreLogic sheds new light on where Millennials—now the largest age cohort in residential real estate—are choosing to buy over renting suggest that the amount that millennials make is not as much of a factor as the affordability of the housing market.

CoreLogic analyzed over 70 metrics associated with mortgage purchases by millennials across the nation over the past year. The research shows that millennials are buying in markets they can afford, and specifically, where there are good paying jobs and home prices are low.

These not necessarily markets with the largest populations of young adults like Boston, Washington, New York City or San Francisco. Those are places they are renting rather than buying.

CoreLogic ranked all counties with a population greater than 200,000 to determine the percentage of millennial mortgage applications.  The top ten counties might surprise you (below).

Here’s a summary of their findings:

•  Millennials are more likely to purchase homes in the middle of the U.S. where home prices are more affordable rather than along the coasts where homes prices are higher.  The amount that millennials make is not as much of a factor as the affordability of the housing market.  This is most likely due to the higher percentage of millennial first-time buyers with limited equity for the down payment.  The top ten counties have a higher mean millennial income level compared to counties with comparable housing markets.  Additionally, the top ten counties contain mortgages in which the borrower has a higher front-end ratio, which highlights affordability as the driving factor for millennials.

• The rent-to-mortgage cost ratio is not an important factor but the initial cost of buying is.  The ratio is similar in the top ten and the bottom ten counties.  This suggests the monthly mortgage payment is not a factor keeping millennials from purchasing homes but rather the initial cost is.  Many millennials face the challenge of having low to no credit or not having the down payment to qualify for the loan. It is also probable that many millennials do not even apply for loans because of a false perception that they will not qualify

• Millennials are more likely to purchase a home when they move away from their hometown to an area with a higher concentration of millennials.  Two main factors that contribute to people moving are job opportunities and college with job opportunities being the main driver. Although there are a few counties in the top ten list known for colleges, a majority of the areas are not college destinations.  For example, Denver is not a college town but does have more job opportunities than other regions in the area.  However, there are many nearby areas with colleges (Boulder, Fort Collins, and Colorado Springs), which contributes to millennials leaving their hometown.  Denver is the closest region known for high paying jobs and is a great opportunity for millennials to stay in Colorado after graduation.

• Millennials are also purchasing homes in counties that neighbor larger cities such as Utah and Weber UT, Weld, CO, and Clay, MO.  As millennials move to larger urban areas, many are finding more affordable housing in bordering counties and choose to purchase there while still taking advantage of job opportunities and amenities in the larger metropolitan area.

 

Methodology

CoreLogic analyzed over 70 metrics associated with mortgage purchases by millennials across the nation over the past year. The research shows that millennials are buying in markets they can afford, and specifically, where there are good paying jobs and home prices are low.

 

CoreLogic ranked all counties with a population greater than 200,000 to determine the percentage of millennial mortgage applications.