For many first-time buyers, lower mortgage rates have allowed them to stretch their budgets and buy more expensive homes.
If any first-time homebuyers were on the fence about taking a more traditional starter home path to homeownership in 2020, the Covid-19 pandemic brought into focus the way they viewed homes and what they really wanted for a dream home.
For Millennial home buyers, this past year’s change in the economy, employment and especially dropping interest rates offered surprises, with 47% being pleasantly surprised that they could afford a higher-priced home, according to a generational insights report by realtor.com. On the flip side, 21% were surprised that their budget was lower than they thought.
The dramatic trajectory of mortgage rates in 2020 was a significant positive contributor to housing finance.
“For first-time buyers, especially, the decline in the 30-year fixed rate from 3.65% in mid-March when the pandemic hit to a record-low of 2.65% on January 7, 2021, has provided unexpected leverage,” reports realtor. com, adding: “Practically, for many buyers, lower rates allowed them to stretch their budgets and buy more expensive homes than they would have.”
Generation Y, also known as Millennials, is experiencing a massive wave of people turning 30 in the next few years. The wave started in 2020, with 4.7 million Millennials turning 30, an age when many people consider buying a home.
This wave continues in 2021, with another 4.8 million members of the Gen Y generation turning 30. The generational progression will peak in 2022, 2023, and 2024 when 4.8 million people will turn 30, each year.
Considering that in a healthy real estate year, there are about 6 million home sales, it is easy to see what a significant tailwind this demographic wave is projected to have on housing. Millennials are already comprising a dominant share of residential real estate transactions. Within this context, first-time buyers are boosting housing in 2021 and beyond, playing an important role in real estate markets across the country.
Elymae Cedeño, an operations manager for Uber UBER -1.2% in Chicago, and her husband, Diego Casanova, principal at a management consulting firm, were able to find the right mix of features and amenities in their new home at 1400 Monroe, a seven-story boutique condominium building under construction in Chicago’s West Loop.
In October, the couple, both 30 years old, upgraded from a two-bedroom, two-bath condo to a three-bedroom unit with two and a half bathrooms in the same building for $1.085 million. They plan to use one of the bedrooms as an office.
It was typical for previous generations to have purchased homes by their mid-30s, noted David Wolf of Wolf Development Strategies, which is leading sales for 1400 Monroe. He added that Millennials are now buying their first homes, and many who fall within this age cohort are in a stage of their lives and careers where they can afford larger, more expensive homes.
The trend of first-time buyers driving more of the high-end housing market is likely to continue.
“Uncommonly low interest rates, the ascent of the Millennial homeowner, and the prospect of working from anywhere are converging to shape a housing market unlike any other,” said Adam Contos, CEO of RE/MAX Holdings, in a statement. “We could see mortgage rates begin to inch up soon, so now might be an ideal time for home buyers and sellers to make their move and take advantage of the favorable conditions.”