Ask the next generation of homebuyers and they’ll tell you the future of real estate is bright. Members of Generation Y (Gen Y), made up of individuals aged 18-34, are excited to become homeowners. They’re just not ready yet.
87% of Gen Y young adults plan to buy a home at some point in their life, according to a May 2015 survey by Trulia. That’s very high, considering the current homeownership rate nationwide is just 63%.
Does this mean an 87% homeownership rate is on the horizon? Hardly. For local perspective, California’s homeownership rate is 54.4% as of Q2 2015. At its very highest, it was just under 61% during the Millennium Boom peak. Nationwide, the homeownership average is consistently about 10 percentage points higher — still well below the aspirational 87% of Gen Y.
All the same, just because history shows no precedent doesn’t mean Gen Y won’t be the first generation to achieve unprecedented levels of homeownership, right? Well…
Of those surveyed who plan to buy a home:
- 4% said they plan to purchase a home within the next six months;
- 7% said they plan to purchase 7-12 months from now;
- 17% said they plan to purchase 13-24 months from now; and
- 72% said they plan to purchase more than two years from now.
Thus, less than a third of those surveyed are anywhere close to buying. Further, only 36% of Gen Y said they were saving for a home purchase within the next five years. And since a total of 28% plan to buy within the next two years, that leaves only 8% who plan to buy more than two years from now with an actual plan in place to make their homeownership goals come true.
Homeownership for most of Gen Y is currently nothing more than a pipe dream. But can you blame them?
Members of Gen Y grew up watching their Baby Boomer parents attain success after success, including job and pay advances, new cars, vacations and a nice home in the suburbs. Now, Gen Y awaits their future, hands eagerly outstretched for the fortune that’s probably, hopefully, just around the corner.
The truth is, most Gen Y-ers are unlikely to attain the same success as their Boomer parents. They entered the job market during the worst economic recession this country has experienced since the Great Depression. The solution for many was to return to school, where they racked up unnecessary student debt gaining degrees in fields unlikely to compensate for the student loan payments. Finally, once they did find jobs, pay increases for Gen Y have been and will continue to be slow and barely perceptible when measured against inflation.
All of these factors compound to cause a low savings rate. A full 20% down payment is far beyond the abilities of most potential homebuyers, especially the many who haven’t even started to save.
The good news for agents is Baby Boomers are approaching retirement, and when they retire many will relocate. With the highest homeownership rate of any demographic (70%-80% of California Baby Boomers own their own home), Boomers will have a sizeable impact on the housing market in the coming years. At the same time, Gen Y will continue their relative trickle into the housing market.
2018-2020 is expected to be a Great Confluence of homebuyers, as the significant Boomer population sells their old residences and buys new ones, and a smaller number of Gen Y-ers purchase their first homes.
Don’t expect the homeownership rate to balloon anytime in the coming decades, despite Gen Y’s lofty aspirations. But in the meantime, Baby Boomers will continue to own, and Gen Y will gradually become homeowners. Expect California’s homeownership rate to remain stable — around 53%-55% — for years to come.