As the home building industry celebrates National Homeownership Month in June, new data confirms that homeownership is a key goal of millennials, who are poised to dramatically affect the housing market in the coming years.
In contrast to recent headlines suggesting that millennials are not interested in homeownership, data from the Census Bureau shows that this group is increasingly entering the housing market as first-time buyers. In fact, the homeownership rate of millennials—at 36 percent—registered the largest gains among all age groups in 2017.
Financial Benefits of Homeownership
Millennials recognize the many benefits to homeownership, including the fact that homes are a primary source of net worth for many Americans. The most recent edition of the Survey of Consumer Finances revealed that the primary residence is the largest household asset. These homes accounted for about one quarter of all assets held by households in 2016, ahead of other financial assets, business interests and retirement accounts.
Overcoming Obstacles to Homeownership
Qualifying for a mortgage and saving up for a downpayment remain primary obstacles to homeownership. To help address these concerns, Fannie Mae and Freddie Mac – through the Federal Housing Administration (FHA) – offer low-downpayment mortgage programs geared primarily toward the first-time home buyer market.
These lenders offer mortgages with 3% downpayments, allowing more creditworthy borrowers who lack the funds for a large downpayment to obtain a home mortgage.
To ensure that the financing process goes smoothly, buyers should consider pre-qualifying for a mortgage and having a financing commitment in place before shopping for a new home. Buyers also may find that some home builders have arranged favorable financing for their customers or offer financial incentives.
Townhomes Can Open Door to Homeownership
While home builders recognize the increasing demand for entry-level homes, rising construction costs and limited lot availability create significant challenges to building smaller, single-family detached homes that are both affordable to first-time buyers and cost-effective for builders.
However, millennials have indicated they are willing to compromise on space, which makes townhouses a more affordable option for buyers ready to purchase their first homes. After experiencing a drop during the Great Recession, the share of new townhome construction has been rising since 2009. According to NAHB analysis of Census data, townhome construction in 2017 was up seven percent from 2016.