More affordable and better choice are driving more millennials to buy in the suburbs and fewer in city neighborhoods, according to the 2016 National Association of Realtors® Home Buyer and Seller Generational Trends study.
The share of millennials buying in an urban or central city area decreased to 17 percent in 2016 from 21 percent a year ago while more than half (51%) of buyers under age 35 bought in the suburbs, up from 49 percent a year ago, the study found.
However, younger buyers are not making a permanent commitment to the suburban lifestyle. Buyers 35 years and younger expect stay in their new homes only ten years—the same tenure as last year- compared to the median of 14 years for all age groups, an increase from 12 years in 2015.
Lawrence Yun, NAR chief economist, said while millennials may choose to live in an urban area as renters, the survey reveals that most aren’t staying once they are ready to buy. “The median age of a millennial homebuyer is 30 years old, which typically is the time in life where one settles down to marry and raise a family,” he said. “Even if an urban setting is where they’d like to buy their first home, the need for more space at an affordable price is, for the most part, pushing their search further out.”
“Furthermore, limited inventory in millennials’ price range, minimal entry-level condo construction and affordability pressures make buying in the city extremely difficult for most young households,” he said.
The survey also found that:
- Facing limited choices in their price ranges ($187,400 median price), younger buyers are more likely to compromise with sellers than older buyers. Some 73 percent of buyers under 35 made compromises during negotiations—an increase of 6 percentage points over last year- compared to only 47 percent of those over 70. Top categories where millennials compromised were price (22%), home size (21%), condition (19%), lot size (18%) and distance from job (18%).
Although student loan debt is more prevalent among millennial buyers, they are not the generation with the largest student debt balances. Those buyers aged 51 to 60 who have student loan debts owe a median of $29,100 compared to $25,000 for those under 25.
- Most buyers under 35 are using conventional rather than FHA financing. More than half, 53 percent chose conventional (a slight decline from 56 percent in 2015), and 29 percent went with FHA.
Debt problems are delaying older buyers longer than younger ones. For all buyers, the median period that debt delayed home buyers from saving for a down payment was four years. For buyers 35 years and younger, three years was the median compared to six years for buyers 61 to 69 years.
The younger the buyer, the older the home they are likely to buy. The median age of homes bought by younger buyers was 32 years compared to the national median is 25 years.
- For the third straight year, the survey found that the largest group of recent buyers were millennials, who composed 35 percent of all buyers (32 percent in 2014), more than the combined amount of younger and older boomers (31 percent). Generation X were 26 percent of buyers, and the Silent Generation made up 9 percent.
The median income of millennial homebuyers in this year’s survey was $77,400, down from $76,900 in 2014, and they typically bought a 1,720-square foot home costing $187,400 ($180,900 a year ago). The typical Gen X buyer was 42 years old, had a median income of $104,700 ($104,600 a year ago) and typically purchased the largest home compared to other generations (2,200-square feet), costing $263,200 ($250,000 last year).