Young home buyers remain optimistic and see their home as a good investment, while older buyers are more likely to trade down to a smaller property to match changing lifestyles, according to the 2014 National Association of Realtors (NAR) Home Buyer and Seller Generational Trends study, which evaluates the generational differences of recent home buyers and sellers.
Lawrence Yun, NAR chief economist, says the "millennial" generation, which is under the age of 34, is now entering the peak period in which people typically buy a first home.
‘Given that millennials are the largest generation in history after the baby boomers, it means there is a potential for strong underlying demand. Moreover, their aspiration and the long-term investment aspect to owning a home remain solid among young people,’ he reports. ‘However, the challenges of tight credit, limited inventory, eroding affordability and high debt loads have limited the capacity of young people to own.’
Who Is Buying
Even with the market frictions, the study found that the largest group of recent buyers was the millennials, sometimes called "generation Y" or "generation next" – those born between 1980 and 1995, who comprised 31% of recent purchases. This was followed closely by "generation X," those born between 1965 and 1979, at 30%.
Percentages of recent home purchases among earlier generations were notably lower: 16% were "younger boomers," those born between 1955 and 1964; 14% were "older boomers," born between 1946 and 1954; and 9% were from the "silent generation," those born between 1925 and 1945.
The reason for buying a home also varied across generations: The millennials through the younger boomers most often cited the desire to own a home of their own, while older boomers cited retirement, and the silent generation most often wanted to be closer to family and friends.
Eight out of 10 recent buyers considered their home purchase a good financial investment, ranging from 87% for buyers age 33 and younger, to 74% for buyers 68 and older.
Twelve percent of all recent buyers had delayed their home purchase due to outstanding debt. Of the 20% of millennial buyers who took longer to save for a down payment, 56% cited student loan debt as the biggest obstacle. Comparatively, 15% of buyers aged 34 to 48 had delayed buying.
The median age of millennial home buyers was 29, their median income was $73,600 and they typically bought an 1,800-square foot home costing $180,000. The typical generation X buyer was 40 years old, had a median income of $98,200 and purchased a 2,130-square foot home costing $250,000.
Nearly nine out of 10 buyers financed their purchase, but those buying with all cash increased with age. The study found that 79% of older boomers purchased an existing home, compared with 87% of millennials.
Location And Duration
Although most purchases by all generations were in a suburban area, millennials were more likely to buy in an urban or central city area, at 19%, compared with only 12% of older boomers.
Younger buyers stayed closer to their previous residence, moving a median distance of 10 miles, whereas older buyers moved longer distances, with older boomers at 20 miles and the silent generation a median distance of 30 miles from their previous home.
When it comes to a home's environmentally friendly features, younger buyers placed higher importance on commuting costs than older generations, who placed higher importance on energy efficiency, landscaping and community features.
The older the sellers, the longer they were in their home. The millennials plan to stay in their home for 10 years, while the baby boomer generation as a whole plans to stay for a median of 20 years.
All home buyers, regardless of age, typically began the home buying process by looking online for properties for sales and then contacting a real estate agent. Younger buyers relied on real estate agents to help them understand the buying process, while older buyers most appreciated real estate agents pointing out unnoticed features or faults with the property.
Meanwhile, TD Bank, in its Financial Education Survey focusing on millennials' overall banking habits, has revealed that many young adults take few risks when it comes to managing their money. In fact, 47% of millennials describe their financial personality as being cautious when it comes to overall personal finance habits.
TD Bank also says that these millennials seek advice when it comes to managing their money, with 49% seeing their parents as primary influencers in shaping their banking and financial views, 40% turning to parents and family as a source of information, 54% going in to their bank branch for information, and 62% going online.
Therefore, although NAR's survey shows some variation in homeownership trends among the ages, some of these financial decisions of the younger generation may not be too far off from those of the earlier generation.
The entire 2014 NAR Home Buyer and Seller Generational Trends study can be found here.
The entire TD Bank Financial Education Survey can be found here.