Millennials and homeownership
Is the dream dead or just deferred?
- July 29, 2016
One day Shonté Holcomb would like to run her own day care center. But for now the 28-year-old preschool teacher would settle for being able to afford to move out of her parents’ house in Hanover County.
“There’s no way on the salary I make that I could move out and live on my own,” says Holcomb, who makes about $20,000 a year without benefits as a full-time lead teacher at Tuckaway Childhood Development and Early Education Center in Henrico County’s Varina area. She’s currently looking for a second, part-time job so she could eventually afford to rent her own house or apartment.
“I’ve tried roommates in the past, and it just didn’t work out,” says Holcomb, a high school graduate who has taken some college courses but struggles to afford those, too. She’s thought about looking for a higher-paying full-time job, but she enjoys her work and co-workers at Tuckaway. “I would rather have a full-time job that I really love to do … [along with] a part-time job that I could not like but is giving me money,” she says.
Holcomb is hardly unique. Despite an improved job market over the last five years, millennials between ages 18 and 34 are more likely to be living with their parents. In 2014, this was the living arrangement for nearly a third of them, according to a report released in May by the Pew Research Center.
Another report from Zillow released in June, showed that 21 percent of millennials across the U.S., ages 23 to 34, were living at home with parents.
Zillow, a real estate and rental research firm, found that more millennials live alone in Richmond — 15 percent of the 23 to 34-year-old group — than any other U. S. metro. Zillow attributed the distinction to the region’s strong labor market and median income of $49,500 for millennials living alone.
No matter how one slices the data, though, more young people are living at home. Experts point to varying trends, from people waiting longer to get married to economic woes ranging from a higher cost of living to static wage growth and greater student debt burdens.
At the same time, the U.S. Department of Commerce reported that homeownership in America dipped to 63.5 percent in the first quarter of 2016, close to the 48-year low of 63.4 percent reached in 2015’s second quarter.
More barriers to home ownership
Paired with increased barriers to homeownership such as tighter lending restrictions following the 2008 subprime mortgage crisis, the trend begs the question: Is the American Dream of homeownership still a possibility for millennials? Are they even interested?
Despite the stereotype of young adult millennials as aloof, urban-dwelling, bicycle-riding hipsters who rent loft apartments and are obsessed with craft beer, millennials are actually a lot more like their older counterparts when it comes to wanting to own their own homes.
“National studies are showing that millennials do want to own their homes, but of course, as everybody says anecdotally, they’re waiting longer to do it,” says Mel Jones, a research associate at the Virginia Tech Center for Housing Research.
In fact, the older millennials get, the more likely they are to own a home, Jones says, noting that more than half of the oldest millennials own a home and 88 percent of that cohort own single-family detached homes. “Millennials have a strong preference for privacy,” she says, noting that census data and research show that millennials prefer detached homes and home ownership — if they can afford it.
Take Julia Lange, for example. At 29, she says, “I really want to be a homeowner, but I’m not at a point in my life where it makes sense.” A customer service representative for a pest control company, she and her boyfriend rent a small, detached two-story home in downtown Fredericksburg that they share every other weekend with her boyfriend’s son from a previous relationship. Their combined income is around $80,000 a year.
Lange, who holds a bachelor’s degree in sociology from Mary Washington University, feels like her professional, personal and financial lives need to be more stable before she’s ready to make the jump into home ownership. “I feel like all the factors would have to be in place for me to make that decision, but at the same time one of my best friends is a Realtor, and she has emphasized that I’m really just throwing my money away [on rent] and I’d be better off putting that toward a mortgage. … I’m not super young anymore. I need to really find a career and start to get that moving along. I would much rather be putting money toward a mortgage than a rental.”
Mary Dykstra, owner of Roanoke-based MKB Realtors and a past president of the Virginia Association of Realtors, blames the delay on “the life cycle. Unless they’re never planning on having a family, by the time you’re 31 or 32 you’re going to be thinking about kids,” she says, and that also means thinking about home ownership.
Dykstra teaches a real estate class at Virginia Tech and says her students typically tell her they want to own a home with amenities like a big backyard, good school systems and a two-car garage. “It almost made me laugh out loud, because their dream house is what they grew up in,” she says.
As far as barriers go, Dykstra and others say that increased college debt loads and greater lending restrictions are concerns. Still, there are plenty of options for first-time homebuyers such as FHA loans that require lower down payments, or none at all, such as VA loans for veterans or some USDA loans.
Millennial home shoppers also are more likely to spend more and seek perfectionism, rather than buying a starter home that needs a little TLC, Dykstra says. Since it’s more difficult for new homeowners to obtain home equity lines, they’re more likely to spend more on a home that’s polished and move-in-ready than one that requires renovations.
Tired of waiting for repairs
Software engineer Nick Weishaar, 28, purchased a three-bedroom, two-bathroom detached home in Richmond’s Museum District for $230,000 four years ago. Though the home was built in 1924, it came with central air and a detached garage for his motorcycle, features that were important to him. He doesn’t mind making improvements, such as replacing an old claw-foot bathtub. Mainly he was tired of arguing with his landlords about trying to get repairs made. “I wanted my own place so I could do what I wanted with it.”
Weishaar purchased his home with an FHA loan with 3.5 percent down. His down payment and closing costs came out to a little over $10,000. He was able to save up most of that amount while working in France for his business for several months when he was receiving a per diem for all his living expenses.
“I’m very good with my money. I don’t really spend it on a lot of random stuff,” he says. “I’ve never bought a new car or anything. I’ve [always] bought a used car.”
Another distinction among millennials is their willingness to move to a different state or city if they think it has better cultural or job opportunities.
As Richmond Association of Realtors CEO Laura Lafayette says, “Millennials are far more likely than my generation to be focused on ‘Where do you want to live, what are the amenities that we want in a community, what kind of quality of life do we want? … And then I’ll worry about a job and whether I’m going to own or rent.’”
“They’re chasing jobs and making lifestyle choices in a way that wasn’t done before,” agrees Dykstra, “and they don’t want to be tied to a house that will keep them from moving for job opportunities.” Some also may be hesitant about owning due to what they witnessed during the 2008 crash, she allows, noting that most millennials probably know someone who suffered through a foreclosure or a short sale or saw their home values go underwater.
Flexibility is definitely important to Bryan and Nicole Tucker. Bryan, a 30-year-old contractor, and Nicole, a 28-year-old teacher at Henrico County’s Varina High School, have been living with Bryan’s grandmother and saving money for the last six months while waiting to close on their first house. Priced at less than $100,000, the one-story, two-bedroom, one-bath house in Sandston is in good condition but needs work, like central air and upgrades to the kitchen and bathroom. Their plan is to make the renovations and either flip the house or rent it out within the next two years.
In the meantime, they’ve also purchased a tiny house for $8,000 and are spending about $4,000 in renovations to it. It’s sitting on Bryan’s grandmother’s property, and they’re thinking they might buy a piece of property somewhere for the tiny house that could eventually become a site to build a permanent home or just a vacation spot.
As it is, they’ll be paying about the price of a low car payment for the house in Sandston.
Most of their friends who own are maxing out their home loans, but the Tuckers don’t want to have to compromise their quality of life or worry about how they might make ends meet if they have an unexpected pregnancy. After all, they’re not even sure where they want to end up.
Nicole’s uncle lives in Daytona Beach, Fla., and they’ve thought about moving there because they like it so much. “And we’ve looked at other places, too, like Warsaw [on the Northern Neck],” Bryan says. “We love going to this church out there. If we found a place in the town of Tappahannock for the right price right now, I’d probably buy that, too.”
“We don’t know how long we’re going to live somewhere necessarily,” Nicole says, “so we didn’t want to spend a ton of money to be stuck in one spot and get there and be like, ‘Man, we really don’t like this [commute] or, man, we really don’t like this neighborhood.’ It’s nicer to buy something more in our financial range so we don’t have to worry about the permanence so much.”