More Millennials Want to Buy Their First Homes; Just Not Alone

After camping out at Mom and Dad’s for several years, millennials are finally starting to think about buying their own homes. home buyers and the millennial generation
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It looks like more millennials are finally looking to move out of Mom and Dad’s place. Some 67% of a group surveyed by TD Bank said they’re making plans to fly the coop as first-time home buyers in the next five years.

More than others, the millennial generation believes that home affordability largely requires buying with a partner or spouse, not alone. Of course, the outlook for rising mortgage rates is another factor.

Growing Confidence

In all, some 62% of surveyed first-time home buyers across generations put their house-owning dreams on hold during, and after, the 2008–09 global financial crisis. But nearly one in five is actively looking to buy now, according to the TD Bank First-Time Home Buyer Pulse survey released this summer.

"That is a sizable number of Americans looking to buy a new home,” says Scott Haymore, who heads mortgage pricing and secondary markets at TD Bank. “It is a reflection that the economy is improving, the job market is getting better, and house prices are recovering. In general, consumer confidence has been creeping higher."

When it comes to paying for their new digs, the top four financing options for these potential home buyers include cash savings, 30-year mortgages, affordability programs, and government loans, the survey said (figure 1). 

First-time homebuyers' dreams and challenges

FIGURE 1: REALITY CHECK? This snapshot of the TD Bank First-Time Home Buyer Pulse survey, released this summer, shows that millennial-dominated novice buyers anticipate needing a substantial down payment and certain debt and savings challenges, but they’re hungry to buy. Source: TD Bank. 

Home Alone? Nah

"Millennials are keeping their options open on how to finance,” Haymore says. “A pretty large number mention they would like to purchase with a spouse or partner, which is higher than compared to Generation X or Boomers."

Indeed, 70% of millennials will make the move as a pair, compared with only 49% from other generations surveyed. "Millennials want to live in the city and near the city, and that is expensive, especially in a large metropolitan area," Haymore said.

Financing Options

Thanks to 30-year mortgage rates that are rising but still at historically low levels, homebuying hopefuls might be able to make it happen. In July, the average 30-year, fixed-rate mortgage stood at 4.06%, according to Freddie Mac data.

But that could change quickly as the Federal Reserve begins an expected interest rate tightening cycle—possibly as soon as September—that could impact mortgage rates.

"A significant move higher in mortgage rates of three-quarters to one full percentage point over a one-year period could have a negative impact on first-time home buyers being able to afford the monthly payments," Haymore said. "It could mean they have to save a little more or wait a little longer for their income to pick up."

That could bring the adjustable-rate mortgage (ARM) back into play. Historically, during periods of rising interest rates, “long-term rates go up, short-term rates don't go up as much, and adjustable-rate mortgages tend to come back into favor," Haymore explains.

Home ownership isn’t cheap, but the good news for first-time home buyers is that there are options. "Many lenders are offering home affordability and down-payment assistance programs, so it's important to shop around for a mortgage and learn about the options available," Haymore says. 

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