What Millennials Want in a House and How Lenders Can Help
There are more than 72 million millennials in the U.S., making them the largest segment of the population and a huge influence as consumers driving the economy, according to Freddie Mac’s analysis of the 2019 U.S. Census.
Millennials are at or approaching the peak age to purchase homes, yet they trail behind other generations because of financial limitations, lifestyle choices and lack of affordable inventory.
Still, most of them plan on eventually buying a house, though must-have features are markedly different than those of their parents. What exactly are millennials looking for in a home and how can lenders help overcome potential barriers?
Must-Have Features Drive Millennials’ Desire to Purchase
About 80% of millennials plan on owning a home at some point, according to a 2021 survey by Apartment List. However, what they are looking for is different than in other generations, reflecting their unique needs and values, changing trends in the real estate ecosystem and a vested interest in environmental initiatives.
Millennials aren’t drawn to the large, ornate houses built two decades ago with crown molding, gables and grandiose Mediterranean-style architecture; rather, they prefer smaller, modern, more casual abodes with minimalist designs and clean lines. Desired amenities that will encourage them to make the transition from renter to buyer include:
- Convenient location that’s walkable to shopping, restaurants, parks and other diversions and is ideally also close to their workplace.
- Multi-functional rooms like a guest bedroom that can also be used as a home office or workout area.
- Open floor plans combining the kitchen, living and dining areas, rather than a separate formal dining room.
- Outdoor spaces including decks, patios and gardens to make best use of total square footage and connect them with the natural world.
- Environmentally friendly elements like energy-efficient appliances, natural and sustainable materials, skylights and solar panels.
- Technology-driven automation, like smartphone apps to control lighting, temperature and entertainment systems.
With these preferences in mind, it’s important to note that millennials are increasingly moving from expensive city centers to the more affordable exurbs and suburbs, according to a recent Freddie Mac report. This migration has been exacerbated during the pandemic due to increase in remote work and the need for more space—the impact of which remains to be seen.
Lenders Can Help Address Financial and Lifestyle Challenges
Millennials face various barriers to homeownership, not the least of which is the recent housing boom that has led to a dramatic increase in prices. In addition, 33% have student loan debt, according to Freddie Mac’s data, and down payment savings remain challenging, with only 15% having saved $10,000 and 63% having set no money aside. Information from the 2021 Freddie Mac Millennial Playbook shows that some millennials have no credit history because of a hesitancy about making large purchases—often a residual effect of entering a difficult job market during the Great Recession—and their over-reliance on fintech has led to lack of financial literacy. Millennials are also more open to nontraditional household formations, including getting married and starting a family later than previous generations, which often delays purchasing a home.
The key features millennials seek, including high walkability scores, are often located in higher-priced neighborhoods, while more affordable properties may be in disrepair and need costly repairs. This means they are often left to purchase older houses and do without desired amenities or spend money for renovations or updates. Likewise, installing upgrades to increase energy-efficiency or decrease carbon footprint can be expensive. These and other logistics only exacerbate the existing financial obstacles, making homeownership seem even more elusive. Lenders can assist this demographic through offerings including:
- Financial literacy education, including information on creating a budget, building and maintaining good credit and the process involved with buying a house and securing a mortgage.
- Down payment assistance programs to address a lack of savings and understanding of purchasing requirements. According to a Freddie Mac survey released in 2019, nearly 42% were either unsure of the amount needed for a down payment or assumed that they were required to put 20% down of the purchase price.
- Renovation funding to purchase a home while funding major or minor repairs or updates that reflect these borrowers’ preferred style, design features and amenities.
- “Green” mortgages to purchase a home while funding the installation of energy-saving feature and elements that also tap into millennials’ commitment to sustainability and the environment.
To better serve the country’s largest purchasing demographic, the mortgage industry needs to understand this generation’s housing preferences, remove obstacles and provide financial education and loan solutions so they can get the funding they need and the home they want.