Millennials move from parents' basement to starter homes

Millennial buyers poised to reshape housing market

  • Juni Guerrero of Lake Villa is a pharmacist who recently bought her townhouse in a short sale.

      Juni Guerrero of Lake Villa is a pharmacist who recently bought her townhouse in a short sale. Paul Valade | Staff Photographer

  • Pharmacist Juni Guerrero, who recently purchased a Lake Villa townhouse, is among a growing number of young adults who are becoming homebuyers for the first time.

      Pharmacist Juni Guerrero, who recently purchased a Lake Villa townhouse, is among a growing number of young adults who are becoming homebuyers for the first time. Paul Valade | Staff Photographer

  • At 28, Rori Holm, right, is part of the Millennial Generation that has begun moving into the housing market, most for the first time. Holm and her boyfriend, James Dismang, recently bought in Naperville.

      At 28, Rori Holm, right, is part of the Millennial Generation that has begun moving into the housing market, most for the first time. Holm and her boyfriend, James Dismang, recently bought in Naperville. Paul Michna | Staff Photographer

 
By Amy Robey
Mainstreet Organization of Realtors
Updated 12/8/2014 4:21 PM

Like many recent college graduates, Chris Budz of Lemont is living at home with his parents. But he doesn't plan to stay there forever. In fact, he's actively saving up to buy his own home.

As one of the youngest agents at Realty Executives Elite in Lemont, Budz, 25, understands the value of homeownership more than many of his peers. But that's changing.

 

"There seems to be more young buyers in the market today, and their numbers will only increase," Budz said. "Many of my clients ask, 'Why am I paying rent when I could cover a mortgage on my own house?' "

Budz and his clients exemplify a larger demographic trend. According to the Pew Research Center, 36 percent of Millennials -- people born between the early 1980s and the early 2000s -- were living at home with their parents in 2012, the highest percentage of young adults living with parents in more than 40 years.

A recent study by Harvard University's Joint Center for Housing Studies, however, suggests that Millennials will soon make their presence felt in the housing market. The study predicts household formation will rebound to historical levels in the decade ahead, with the total number of homeowners in their 30s expected to increase by 2.7 million during the next 10 years.

This predicted infusion of first-time buyers will buoy the entire market, said Pradeep Shukla, president of the Mainstreet Organization of Realtors and managing broker of RE/MAX Renaissance in Des Plaines.

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"First-time buyers are missing in the current market, but they are necessary to create a domino effect that allows established homeowners to trade up," Shukla said.

And the timing couldn't be better, with literally millions of baby boomers reaching retirement age in the next decade and many of them wanting to sell houses to move to smaller homes, retirement communities and warmer states.

To become homeowners, however, Millennials will have to overcome several unique economic obstacles, such as tight lending standards, mounting student loan debt, competition from investors and outsized expectations, all of which have left many living in apartments or, like Budz, at home with their parents.

Obstacles to lending

"The biggest barrier for Millennials has been credit and financing," said Budz, noting that first-time buyers have been especially affected by more stringent home loan requirements.

                                                                                                                                                                                                                       
 

Brian Kwilosz, a Realtor with Exit Realty in Downers Grove, agrees.

"After the economy crashed in 2007, the lending community contracted and standards became much more conservative," said Kwilosz, who also co-chairs the Mainstreet Organization of Realtors' Young Professionals Committee. "In the last two to three years though, it's gotten more realistic. Now, if you should qualify for a loan, you will."

Still, financing can be an issue for some first-time buyers, such as Westmont residents J.R. Hoffman and his wife, Dana.

After a long search, they found the home of their dreams but nearly lost it after J.R.'s credit score dipped below the threshold he needed to qualify. To save the deal, the Hoffmans worked with their lender to a secure a new FHA mortgage, which came with lower credit requirements. However, the new loan came with other stipulations.

"The FHA has a list of repairs that must be completed prior to closing, which includes addressing peeling paint in homes built before 1978," Hoffman said.

The paint on this particular home had seen better days so, in order to close the deal, Hoffman found himself up on a ladder with a paint roller.

"We'd gone so far already," he said. "I told the sellers, 'Hey, I will do this. If you give me permission, I will come out and paint the house myself.' "

The extra work paid off, and the Hoffmans closed on their home at the end of July.

Misconceptions

While the tighter credit climate can be blamed for some Millennials' decision to put off home buying, others may not fully understand their options.

"There's a huge misconception out there," said John Horton, vice president and senior residential lending manager at Associated Bank. "You don't need 20 percent down and a credit score above 800. An FHA loan only requires a down payment of 3.5 percent, and many conventional loans require only 5 percent down."

For young would-be homebuyers, getting preapproved for a mortgage is paramount, Horton said. Not only will they be more attractive buyers, they'll know exactly what they can spend, which can prevent heartbreak.

"As an agent, you never want to see your clients find the home of their dreams only to discover they can only afford half," Kwilosz said.

Managing debt

Another barrier to home buying for Millennials is student loan debt, which has grown dramatically in recent years as college costs have increased nationwide.

While serious debt burdens can make it difficult to qualify for a home loan, it's also possible to find ways around the problem. Take the example of 30-year-old Juni Guerrero.

When the Lake Villa resident graduated from pharmacy school in 2010, she moved home temporarily while she got her finances in order. First, she extended her student loan repayment plan from 10 to 15 years. Next she fell in love with a house.

"The moment I stepped in, I knew I wanted it," Guerrero said. "It spoke to me."

The home was a short sale, which meant the buying process took six months, much longer than Guerrero had anticipated. But since she was not in a huge rush to leave her parents' home, she was able to wait it out. For her, restructuring her student loan burden, bunking with her parents and enduring a lengthy sales process was all worth it.

"Owning a home has always been something I wanted to accomplish," Guerrero said. "I never dreamed of a big wedding, just a home of my own."

Staying competitive and managing expectations

Finding a home of one's own isn't always easy, though. With low inventory levels, first-time homebuyers today face steep competition from cash buyers and investors who are often attracted to properties in the starter-home price range.

"We ran into bidding wars on every single house," said Hoffman, who along with his wife made failed offers on two properties that were countered and eventually lost before the couple was successful purchasing their current home.

"Our Realtor called about one home while we were viewing the property and they said, 'Unless you can beat a cash offer, don't bother.' It was like whoa, wait a minute, we thought this would be easier."

It took 28-year-old Rori Holm five months and more than 75 showings before she and her boyfriend found the right house in Naperville. Her list of must-haves included three bedrooms, two baths, a basement and a nice backyard, all within a reasonable commute from her job as a marketing coordinator for a software firm in Willowbrook.

"There weren't many options on the market," Holm said. "We looked at homes every weekend and began to get discouraged. We had a picture in our minds of what we were hoping to find, but we started to wonder if we were being reasonable or whether it made more sense to rent for the time being."

Call it the "HGTV effect." Realtor Chris Budz says many of his clients suffer from it.

"They want a perfectly remodeled, move-in ready home in a desirable neighborhood," he says. "But HGTV isn't reality. It's unlikely you will find one home with everything on your wish list -- like granite, stainless steel appliances, hardwood floors -- within your price range."

"We knew half way through the tour it was the place for us," Holm said of their new home. "It was in a good neighborhood near parks and located on a cul-de-sac, and it had updated kitchen appliances."

So the couple made an aggressive offer and, a week later on their third anniversary, they learned they got the house.

Holm's Realtor, Casselyn Feinstein of ERA Team Feinstein LLC in Hinsdale, said the couple was right to move quickly.

"Newer buyers tend to be slower to pull the trigger, which means they often miss out on properties for which there are multiple bids," she says.

And when it came to financing, the couple did homework.

"We spoke to three different lenders and chose the lender that offered us the most attractive package," Holm said.

Feinstein says her clients were smart to look into their options. "There are different types of mortgages available, including FHA loans, and many tax credits," she says. "You can find what works for you."

Aspiring to homeownership

Despite witnessing ups and downs in the housing market over their lifetimes, nearly all Millennials see value in homeownership. According to a recent study by the Demand Institute, more than 80 percent of Millennials either already own a home or plan to purchase a home someday.

And when they do, their presence will have reverberations across the housing market, especially when it comes to how homes are sold.

Jane Condon, a Realtor with Keller Williams, Palatine, advises agents to step up their game.

"These buyers are very tech savvy. They get home values from Zillow and understand economic factors that impact our marketplace," she says. "Realtors must become advisers."

Agent Chris Budz agrees. "Ten or 15 years ago, people called an agent and had a wish list of what they wanted in a home. Today, people approach us with a list of properties they're interested in," he said.

That also means being available for your client 24/7. "People text you at 11 at night," Feinstein said. "Even when you are on vacation, you are always on the phone."

But at the end of the day, the Realtors say, it's all worth it when you can help someone find their dream home.

"We love our house," Hoffman said. "We were able to buy at a great time. Our careers were moving forward, our family was moving forward. It just seemed like the next step in the process of life was buying a home. It's an investment for the future."

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