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Regardless of what you are reading to understand the disparities of all the generations, one thing is for sure: Millennials are the largest and most educated living adult generation in the country. According to the National Association of Realtors, in 2019, millennials represented the largest cohort of homebuyers at 37%, making them the most active generation of buyers for the sixth consecutive year. About 1 in 3 Americans under the age of 35 owns a home, according to the U.S. Census Bureau; however, that’s actually 8% lower than previous generations’ (baby boomers and Generation X) homeownership rates at age 25 to 34, according to research from the Urban Institute’s Housing Finance Policy Center. Long story short, homeownership eludes millions of millennials.
Statistically speaking, what’s the problem?
Although many millennials are choosing to buy a home later than the generations before them, and many millennials are choosing to get married (a life step often in coordination with buying a home) later, tens of millions of millennials are not homeowners primarily due to three reasons: they can’t afford a down payment, they can’t qualify for a mortgage due to their student loan debt or they simply prefer to rent because it’s more convenient. Clearly, this generation is different in almost every way. Their mystique, perspective and reasons for doing or not doing something are largely driving our economy as their modern influence is redefining the world. Could this be why everybody is so infatuated with millennials?
The fact still remains that more than half of the millennials surveyed by The Urban Institute can’t afford a down payment and another third surveyed can’t qualify for a mortgage. Given the significance and size of this generation, this is a real problem that needs to be addressed.
As the now second-largest living generation — baby boomers — begins to sell their homes and downsize or move to retirement living facilities, who will buy their houses? Baby boomers own a third of all U.S. homes! Unless we figure out a solution to help more millennials afford and/or qualify for a mortgage, one could argue that over the next decade we could face an economic gridlock due to an aging generation that needs to sell and an up-and-coming generation of millions of people who can’t qualify to buy.
Practically, what’s a viable solution?
An easy, practical and simple solution that I see to this problem is for real estate agents throughout the country to be more flexible and to offer homebuyers a buyer rebate to make homeownership more affordable. Having personally built a real estate brokerage company that offers all of its homebuyers a buyer rebate, I’ve repeatedly seen firsthand how we’ve put more people into homes who otherwise wouldn’t have qualified because they didn’t have enough savings. These buyers have good credit and make the money to qualify for a mortgage; they just don’t have enough cash for a downpayment and closing cost.
Buyer rebates reduce the amount of cash they need to bring to closing, giving more millennials an opportunity to purchase a home. However, unfortunately for millennials throughout the country, 73% of real estate agents said they would not lower their 6% standard commission rate to make way for such a rebate. Obviously not on the same page as the real estate industry, the Department of Justice has even stated that buyer rebates are a viable option for making homebuying more affordable.
So, what gives? You have a legacy industry (real estate) whose founding fathers historically condoned segregation, sexism and price-fixing. Now you have an emerging generation of very diverse consumers who are confronted with new problems that need new solutions when it comes to housing. Why is there such collective hypocrisy and insensitivity to these problems from an industry that’s licensed to encourage and support homeownership? Is there a disconnect, a lack of empathy and understanding between generations?
The typical Realtor is a 54-year-old college-educated white female who is a homeowner. In 2018, however, first-time homebuyers throughout the country were a median age of 33, educated and diverse. Looking ahead, the post-millennial generation, Gen Z, is the most racially and ethnically diverse yet. In short, the real estate industry must begin to better recruit and reflect the image of its consumers. In addition, it must provide home loans and real estate services that will put more millennials in a position to purchase a home.
Can buyer rebates make homeownership more affordable for millennial homebuyers? Yes. Could buyer rebates help place more millennials into their own homes? Yes! Offering buyer rebates would be the easiest, fastest and most practical solution. Another would be reimagining mortgages to better address student loan debt, which keeps most millennials from qualifying for a mortgage.
In addition, there needs to be a new breed of real estate agents and brokerages, with fresh ideas, payment options, service options and business models that meet today’s consumers at their individual point of need. It’s going to be very difficult for the real estate industry to successfully reach and serve a progressive generation with an eight-track mentality and value proposition in a Pandora-streaming world that’s built to give consumers instant access to information, more control and the best service — at a fair price.
I encourage the real estate industry to sincerely take inventory of the characteristics and needs of today’s consumer. Millennials are nothing like the majority of real estate agents. They don’t look like them, don’t think like them and they have different beliefs, needs and wants than the average real estate agent. The largest purchaser of homes today is an educated, diverse, tech-driven consumer who wants great service at a fair price. We can no longer have an antiquated, inflexible and rigid industry governed by an old guard in a consumer-centric world. Post-pandemic, the consumer will demand even more from an industry that is beyond determined to not conform to their needs.