First-time homebuyers are largely sitting out this housing recovery, and while affordability is the main reason, it is not the only one.
It could also be they just want more than their parents did. Three-quarters of first-time homebuyers say they are looking for a home that will serve them long term, perhaps accommodating a family. They claim they don't want a starter home. That's according to a new national survey by Bank of America of more than 1,000 adults age 18 and over who want to buy a home in the future.
The share of first-time buyers fell to just 30 percent in February, according to the National Association of Realtors. Historically, it should be at least 40 percent. The common explanation for this has been that there are too few low-priced homes for sale, and that tight credit standards and high student loan debt take homeownership off the table for young buyers. Those are still valid reasons, but playing into that could also be this young generation's need for something bigger and better.
Sixty-nine percent of those surveyed said they were willing to wait until they could afford that longer-term home, rather than pony up the cash now to buy a starter home. More than half said they didn't think they could afford the type of home they'd want. Just about one-third cited high debt as a reason for putting off buying. In fact, when looking by generation, more Gen Xers than millennials have deferred purchasing their first home because of debt.
"What the report brings out is the shift in how millennials are thinking about homeownership. A home is much more of an emotional decision and a life priority decision. Is this a place where I may ultimately want to retire?" said D. Steve Boland, consumer lending executive for Bank of America.
Not only are they willing to pay more, but they're willing to do what it takes to afford more. More than half say they would make sacrifices when it comes to their spending on a car, travel, clothing and even their social lives, in order to afford the home they truly want.
Part of the shift may also be due to the fact that millennials are starting to age into their prime homebuying years, and they've already waited longer than their parents to buy. The recession hit millennials hardest, in employment and wage growth. Millennials, defined as those ages 18 to 34, have waited longer to marry and have children than previous generations.
"I do agree there are some well-heeled educated millennials who are very specific about their wants and demands," said Nela Richardson, chief economist at Redfin, a real estate brokerage.
Richardson, however, does not believe that is the primary reason the young are opting out of starter homes. It's far more simple than that.
"There are not a lot of starter homes around. All the inventory increases we've seen have been at the high end of the market. For any affordable home that hits the market, there are not only tons of first-time buyers, but investors looking to flip it or rent it out," she said.