I find that having the right perspective of a problem is the critical aspect of successfully understanding and solving it.
Millennials seem to confound many business people. After an opportunity to have a millennial intern in 2014, my approach to them changed. Fundamentally, millennial homebuyers are just like boomer homebuyers were when they started in the workforce, and the millennials were being born. In fact, many of us are parents, aunts or uncles to millennials who have grown up and are now paying their own bills (most of the time). Though at times we feel they are light-years away from us, the essence of a millennial is much easier to comprehend than it first appears.
However, reader beware—if you mess up early with a millennial, you might not get a second chance.
Get perspective on millennial homebuyers
There are many reasons why Colorado home builders should stay engaged with millennials.
Per rentcafe.com, Colorado is the go-to state for this cohort, and Denver is on the zip code leader board with four zip codes in the top 20 fastest growing locales in the nation.
What used to matter in home buying still matters: location, career stability, state of relationships, debt to income concerns, value and view of being a home owner. Millennials have added a new factor to the home buying decision, though—is it still “cool” to own a home?
Some of our boomer experiences still ring true for millennials. Assistance in buying the first home is still needed and often provided by loving parents and relatives. A new baby brings on the reality of practical living that we all face as we come of age. Communication is still essential to have effective marketing and sales results.
But what’s different about the 30-year-olds of today and many of the baby boomers when they started to consider buying their first home?
First, most of us never experienced the devastating loss of a family home or feared the loss of a home at the level this group did when they were young. The financial crisis and housing crash had a huge influence on their sense of security. Just like the folks who saved everything after suffering the Great Depression or World War II, the sense of fear and lack of security caused by direct experience of such an event cannot be underestimated.
For millennials, many college graduates could not find stable jobs following the financial crisis, and had to endure living at home until 2012 or later.
Today, many millennials have found jobs and are out on their own, but the stability of their jobs is still not there. A 2017 article by Gallup noted that “21% of millennials say they’ve changed jobs within the past year, which is more than three times the number of non-millennials.”
Millennial homebuyers wrecked by student debt
The economy of higher education has gone off the rails, loading many millennials (and their parents) with education debt that was easily secured but hard to pay off. Consequently, you have a natural delay in home buying caused by an unhealthy debt to income ratio. The Federal Reserve’s “Consumer & Community Context” report has the facts:
- “Outstanding student loan balances have more than doubled in real terms (to about $1.5 trillion) in the last decade, with average real student loan debt per capita for individuals ages 24 to 32 rising from about $5,000 in 2005 to $10,000 in 2014.”
- “In surveys, young adults commonly report that their student loan debts are preventing them from buying a home.”
- “We estimate that roughly 20% of the decline in homeownership among young adults can be attributed to their increased student loan debts.”
Parents lend a hand
Many of the older folks who would have provided assistance to first-time buyers were hurt as well during the housing crisis of 2008. Some parents are just beginning to be able to assist their children with buying their first home, but this assistance is on the rise, according to the National Association of Realtors’ “2018 Home Buyers and Sellers Generational Trends” report.
As most builders know, there are typically three ways that parents assist first-time buyers.
Sometimes, parents choose to become co-applicants on the mortgage. A co-applicant means that the parents’ income, assets, liabilities and credit will be assessed and considered as part of the mortgage approval. In most of these situations, the parents become nonoccupant borrowers, which means they do not occupy the property but are equally liable for the mortgage and deed of trust.
In some cases, parents elect to give a gift toward the down payment. In that case, the borrower and donor must complete and sign a form called a “gift letter,” which specifies the date and amount given, as well as the relationship between the borrower and donor. The letter also contains a statement that the funds are a gift and no repayment is required or expected.
The lender must be able to determine that the gift funds are provided by an acceptable source and are the donor’s own funds. That’s why you may also be required to provide a copy of the donor’s withdrawal slip or bank statement and the borrower’s deposit slip or bank statement.
Most homebuyers work with traditional lenders such as a bank or credit union to take out a mortgage, but parents with liquidity can also be an excellent source for private lending.
Millennials test the value of ownership
Given the various challenges millennials have faced—job scarcity, higher education costs and the Great Recession—their progress toward traditional milestones like finding a stable job, feeling confident enough to make big commitments or finding a solid life companion have all been delayed by about three to six years. This group will jump into ownership when the time is right. Given their embedded fiscal conservatism, I personally do not blame them for being a bit slow to jump into homeownership. It is the building community’s job to make this an easy, fun and rewarding experience.
Once you navigate through all of the challenges faced by millennials coming of age, you have to change your perspective to understand how to communicate with them. Given the general financial challenges they faced and their acceptance of technology, their view of ownership is much different from that of previous generations. For instance, ownership of anything seems to many millennials like a waste of scarce valuable resources. If you can get the benefit of a bike (Lime) or a car (Uber) without plunking down a large chunk of change, then who cares who owns it?
This is a huge pivot from generations that valued ownership of everything. Technology has provided a means to test the value of ownership. This is one area where you can take action. Prove out the own-versus-rent argument from the old days. The scariest potential downfall to the millennial buyer is asset devaluation. This is where building equity into the sales price really matters.
Now, the vote is still out on how all this will play out for millennials. As anyone with gray hair knows, leasing a car when you’re going to rack up high mileage is a rip off when it comes time to turn it in. As a consumer, you gave up the right to the residual value and you paid 100% for the use of the car plus interest.
Technology drives communication
Perhaps the most important step you can take to proactively reach millennial homebuyers is to develop a strategy for how you use technology. Builders can have the coolest location with the perfect product and a highly skilled sales team, but without a proactive and professional online presence, they have a good chance of never seeing the millennial homebuyer they are targeting.
If the millennial buyer has to work hard to find builders and their products beyond a few mouse clicks, builders most likely will not see that buyer. This is the big pivot for builders: All of us know that what really matters is the location, the quality of the house, the design, the equity growth and the buyer experience. However, for millennials, technology is tied to experience. The millennial buyer judges you very harshly right from the start. Many of them feel that if you do not have your online presence in order, you cannot possibly have your building process in order.
What can builders do?
In the face of nationwide affordability issues—Ivy Zelman’s Z Report noted that “the median price of an existing home across the country, which we consider an approximate gauge of the entry-level price point, was $216,800”—what can builders do to reach this financially strapped and emotionally unique cohort?
Builders need to provide great product at affordable prices to even be a thought in the mind of many millennials. Builders also need to offer buyer education and marketing that explains the homebuying process in a way that makes it achievable, not beyond the reach of most hard-working millennials.
So some nuggets of good news. You can be selective about where you invest, you can improve your communications and use of technology, and you can adjust how you speak and relate to the millennial buyer. Once you have the right perspective, you can really get to know anyone.