According to the 2013 American Housing Survey (AHS), one out of three households who moved and bought a home in the previous two years were millennials
Palm Coast, FL – December 15, 2014 – The following report is made available courtesy of HousingEconomics.com.
By Natalia Siniavskaia, Ph.D.
Economics and Housing Policy
National Association of Home Builders
According to the 2013 American Housing Survey (AHS), one out of three households who moved and bought a home in the previous two years were millennials. Being the youngest home buyers with little or no accumulated wealth affects how millennials shop and buy their homes, often for the first time. This article examines the 2013 AHS data and looks at what homes millennials bought over the previous two years, how they financed their purchases, what motivated them to move and how they chose homes and neighborhoods.
Among other findings, the article reports that:
- Three out of four millennial home buyers are first-time buyers.
- Compared to older generations of buyers, they are less likely to buy a new home but more likely to buy a condominium.
- Homes purchased by millennials tend to be older, smaller and less expensive. Half of all homes purchased by millennials averaged less than 1,650 square feet of living space and cost less than $148,500.
- The most common reason for moving reported by millennial home buyers is to establish their own household, followed by the desire to have a larger unit and own it.
- When choosing a particular home, millennials are more likely to let financial reasons influence their choice, while older generations consider the right size most often.
- When selecting a new neighborhood, the right house most often influences the decision for both millennial and older home buyers. However, millennials are more likely to also pay attention to proximity to work and having good schools.
- Compared to older generations of home buyers, millennials are more likely to finance home purchases out of current income rather than out of accumulated wealth, and when taking out mortgages they are more likely to use unconventional zero-down mortgages.
The analysis in this article is based on the 2013 American Housing Survey (AHS), the most recent release of this ongoing biennial housing data collection. The survey is designed by the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau to capture a relatively large amount of information about the physical and financial characteristics of the units in which Americans live. For purposes of this report, only housing units purchased in the two years preceding the 2013 AHS interviews are considered. Housing unit characteristics are tabulated by the age of the household of head, a person in whose name the housing unit is owned. Millennial home buyers are householders that were 33 years old or younger in 2013 and bought homes within the two years prior to the AHS interviews.
Characteristics of Purchased Homes
According to the 2013 AHS, millennials bought more than 2.6 million homes over the previous two years. The majority of millennial home buyers are older millennials ages 25 to 33, with the median age of 28 years. Close to 46 percent of millennial home buyers are married, more than 26 percent have kids. Half of millennial home buyers reported income in excess of $60,500 while the median income of older home buyers was $69,052. Detailed demographic characteristics of millennial and older home buyers are summarized in Appendix 1.
Being the youngest home buyers in the market today, the majority of millennials are buying homes for the first time in their lives. Three out of four millennials who purchased a home in the previous two years were first-time buyers, but a quarter traded their existing homes. Among older home buyers, these shares flip with 77 percent of older home buyers trading their existing properties and around 23 percent entering the market for the first time (see Table 1).
Compared to older generations, millennials are less likely to buy a new home. Over the two years prior to the 2013 AHS interviews, less than 9 percent of millennial home buyers bought a new home. The share was close to 12 percent among older home buyers. In general, homes that millennials buy tend to be older. Half of all homes purchased by millennials are built before 1975, while the median age of homes bought by older generations is 1985.
Similarly to older generations, the vast majority of millennial home buyers choose to buy single-family detached homes. More than two thirds of millennials who bought homes over the previous two years purchased single-family detached properties. Nevertheless, compared to older home buyers, the millennial generation shows a slightly higher preference for multifamily condominiums. Over the two years, close to 9 percent of millennial home buyers bought a multifamily property compared to less than 6 percent of older home buyers (see Table 1).
Consistent with being the youngest and largely first-time home buyers, millennials tend to buy homes that are, on average, smaller and concentrated in the lower price ranges compared to homes purchased by older generations. Chart 1 and 2 show detailed size and price distributions of homes purchased by different generations of buyers.
Millennial home buyers are concentrated more heavily at the low end of the home size distribution. More than a quarter of millennial home buyers purchased homes with less than 1,200 square feet of living space and another quarter bought homes averaging between 1,200 and 1,650 square feet.
The median size of homes bought by the older generations was 200 square feet larger – 1,850 square feet. The older generations dominate at the high end of the home size distribution, consistently registering higher shares for all homes with more than 2,000 square feet. While only 8 percent of millennial home buyers bought homes with 3,000 or more square feet of living space, that share was more than twice as high for older home buyers – 18 percent.
The appendix 2 presents analysis based on different ways of measuring home size – in terms of rooms, bedrooms, bathrooms and presence of family, dining rooms and other home features, such as garage or carport. The results are always consistent showing that compared to older home buyers, millennials are more likely to buy smaller homes regardless whether you measure home size in terms of square feet of living space, or number of rooms, bedrooms, or bathrooms.
Homes that millennials purchased over the last two years are also more likely to be at the low end of the home price distribution. More than a quarter, 27 percent, of millennial home buyers paid less than $100,000 for their homes. Additional 23 percent purchased homes valued between $100,000 and $150,000 setting the median price of homes purchased by millennials at $148,500. Homes in the $150,000-$249,000 price range were also very popular with millennial home buyers with close to 29 percent buying homes in this price range.
The shares of millennial home buyers drop precipitously in the $250,000+ housing market with less than 21 percent buying homes priced at $250,000 or more. In comparison, the median price of homes purchased by older buyers was $177,000 and their shares at the pricier end of the market were consistently higher. 36 percent of older home buyers bought homes valued at $250,000 or more.
Reasons for Moving
The AHS asks respondents who moved recently the reasons they moved. Multiple reasons can be cited, so the reported shares do not add up to 100 percent but rather reflect how common various reasons are for different generations of home buyers.
Chart 3 summarizes some of the most frequently cited reasons and highlights the generational differences. One out of three millennial home buyers moved in the previous two years to establish their own household, this is by far the most common reason for moving among millennial home buyers. Looking at older home buyers, only 13 percent mentioned establishing their own household as a motivating factor for moving.
The next two most frequently cited reasons for moving among millennial home buyers are the need to have a larger unit and desire to own it. Close to 15 percent of millennial households cited these needs as reasons for moving. Among the older generations, less than 14 percent of home buyers were motivated to move to have a larger unit and only 9 percent moved to own a home. While millennials are more frequently motivated to move to find homes larger than their current residencies, older households cite the desire to live in higher quality units and have less expensive maintenance more often.
Compared to older home buyers, millennials who are typically in the beginning of their careers are also more likely to move because of new jobs or job transfers. Close to 11 percent of millennial home buyers cited new jobs as one of the reasons for moving. That share was slightly less, under 9 percent, among older generations. Millennials also consider proximity to work and school more frequently than older home buyers and are more likely to move to make their commute times more convenient.
Family/personal-related reasons, such as the desire to live close to another family member or other relatives, play a bigger role for older home buyers. More than 11 percent of these older households but less than 4 percent of millennials cited family/personal-related reasons as influencing their decisions to move.
Home Buying Process
When shopping for a new home, millennials are just a bit quicker at picking their new home compared to older home buyers. On average they look at 13 other units before finally choosing a home and half of millennial home buyers look at 8 units or less. Older customers shop just a bit longer and on average look at between 14 and 15 units before buying a home, with half of older home buyers looking at 10 or more units.
The AHS recognizes that movers’ reasons for selecting a new neighborhood may be different from their reasons for choosing a particular home and gathers data to answer both questions. When it comes to picking a new neighborhood, a house itself is the most frequently cited reason by both millennial and older home buyers. Three quarters of older home buyers and even larger share of millennials cited a house itself as the reason for settling in on the neighborhood choice.
Community safety and the looks and design of a neighborhood were ranked similarly high by millennial and older home buyers. Being close to friends and family was next on the list of reasons for picking a neighborhood by both millennial and older home buyers even though millennials cited the proximity to friends and family more frequently.
The generational differences clearly stand out when good schools and being close to work are considered. More than half of millennials but only 40 percent of older home buyers cited proximity to work as one of the reasons for picking a new neighborhood. Similarly, 42 percent of millennials but only 34 percent of older home buyers worried about good schools when selecting a neighborhood. Being close to public transportation was the least important factor with less than 15 percent of millennial and older home buyers paying any attention to how convenient public transportation is.
The generational differences are also noticeable when evaluating reasons for choosing a particular unit. Financial motives top the list of reasons most frequently cited by millennial home buyers. Three out of four millennials picked a particular unit because they liked it for financial reasons. Among older home buyers, only 64 percent let the financial reasons influence their home choice.
Millennial home buyers are also more likely to pick a particular unit because they like the size, room layout and design, and because it is located in the neighborhood they like. Even though these three reasons are cited less frequently by older home buyers they are the most common, with the right size being the dominant reason for picking a particular unit by older home buyers.
When it comes to a nice yard or a beautiful view, older home buyers are more likely to let these features influence their decision to buy a particular unit. More than half of older home buyers, 55 percent, but only 51 percent of millennial home buyers cite a yard, trees, or a view as reasons for picking their new home.
Financing Home Purchases
The AHS also collects data on how home purchases are financed. The 2013 data show that in comparison with older home buyers millennials are more likely to rely on mortgage financing. Among millennials who purchased homes over the last two years, 82 percent had to take out a mortgage and only 18 percent reported having no regular mortgages. In comparison, among older home buyers less than 69 percent reported taking out a mortgage to finance a home purchase.
Looking at home buyers with a mortgage, millennials are more likely to use their savings or cash on hand as a main source of down payment. 61 percent of millennial home buyers and only 51 percent of older home buyers with a mortgage reported savings as a major source of down payment. Another 12 percent of millennial home buyers with a mortgage had no funds for a down payment and took out an unconventional zero-down mortgage. The older generations are less likely to rely on zero-down mortgages as only 8.5 percent reported making no down payments when taking out a mortgage.
Older generations of home buyers that are often in the market to trade up and come with built home equity are more likely to use the sale of a previous home as a main source of down payment. Close to a quarter of older home buyers with a mortgage used accumulated home equity to make a down payment on their next home. In comparison, only 7 percent of millennial home buyers reported the sale of previous homes as a main source of down payment.
Other sources of down payment, such as inheritance, non mortgage borrowing, and sale of other investment play a much lesser role across generations.
The analysis highlights that being the youngest and largely first-time home buyers in the market place today, millennials are more likely to finance their home purchases out of current income rather than out of accumulated wealth and rely more heavily on mortgage credit. Consequently, availability of mortgage credit and the stringency of lending standards are more likely to affect home buying activity of millennial rather than older home buyers.
Report available to the public as a courtesy of HousingEconomics.com