According to the National Association of Realtors, as of this year, millennials, those aged 28 to 43, make up about 38% of the homebuying market.
But with housing affordability being an issue both here in Florida and across the country, how are they making these purchases?
New studies are showing some new trends that might explain it.
“I kind of fought through the Hunger Games in 2022 to find a home here,” shares Bruno Santos.
Santos is 28 years old and has lived in Doral his whole life. For years, he had been saving for a lifetime goal of his, purchasing a home of his own in Brickell.
“So, it’s interesting because in 2019 and 2020, when I was starting to do the math and understand if I can afford a home, it was much simpler back then,” he explains.
“Interest rates were 3-4%, 5% down was normal, 5%, 10%. So as I was doing the math and saving up money throughout the pandemic and a little bit after actually, the affordability started to climb, right? I couldn’t afford it.”
So, Santos decided to get some extra help from his parents, asking them, “Hey, can you help me with something? Can you help me with the down payment or the closing cost?”
It’s a question that’s being asked by more than a third of millennials across the United States who are considered to be ‘nepo-homebuyers’, part of a group of homebuyers who rely on family financial support for a down payment or costs related to a first home.
According to research from Redfin, 36% of millennials and Gen-Z’rs are expecting cash funds from family members to help with costs on their first home. Jack Caporal, a research analyst with Motley Fool who has done similar studies, says that total is double what it was in 2019.
“The most recent survey data shows that about two thirds of millennials report having nothing saved for a down payment. And just about 20 percent have more than ten thousand dollars saved for down payment,” Caporal said.
“Typical wisdom is you want 20 percent for a down payment. In reality, most young folks have somewhere between eight percent and 11 percent saved up for a down payment when they buy their home. Those numbers make it clear that any additional support will make your offer on a home and your ability to pay for a home or the long term must a much more attractive offering.”
That was the case for Santos whose parents helped with closing costs and renovations, like a new kitchen and flooring. He says he knows he’s one of the lucky ones, the only one in his friend group who’s been able to make that kind of purchase.
But how expensive is it? And what are the ways in which making that kind of investment can become affordable for those in younger generations?
Let’s use Santos as an example, “So when I first bought the apartment, it was about $380,000. This was in 2022. And when I first bought it, HOA fees were about $590, almost $600. And now I’m close to $900, two years later.”
The price of his Brickell apartment has also increased. Similar one-bedroom units, according to their website, are now starting at $575,000.
The only way Santos has been able to stay a-float is through climbing up in his career.
“Pre-Pandemic, I was making about $65,700, depending on the bonus. And now I’ve climbed up the corporate ladder and it’s made it so much easier to afford. Now I’m around $110,000. So, if it wasn’t for that, there’s no way I could afford this. There’s no way.”
According to Redfin, more than 39% of nepo-homebuyers say they are working a second job just to save for a down payment.
“Home prices have risen by over 40 percent. Making that large down payment upfront is out of reach for a lot of young homebuyers,” Caporal said.
“In that instance, a homebuyer is making a less attractive offer to the seller because they have less down up front and their mortgage payment is also going to be larger because, again, they’re starting with less equity and they need to take out a larger loan.”
RENT-TO-OWN
But for those first-time homebuyers who aren’t ready to put that much money down there is another option. It’s called rent-to-own.
“Rent-to-own is an arrangement that allows a tenant to rent a home with either the option or obligation to buy it at the end of the rental period. And part of the rent that’s paid would contribute towards a down payment,” Caporal explains.
According to Motley Fool’s Research, millennials are the generation with the most interest in looking at rent-to-own as an option. 50% of all participants in the study said they would consider it because they could “purchase a home without strong credit, saving for a down payment, or qualifying for a mortgage.”
But there are pros and cons to this option.
If you are the seller of the property, you want to be confident that the price of the home you are renting will stay the same or lower over the next few years.
If you are a renter, you will be paying a higher rental payment with some of the funds going towards your future down payment, and you’ll also be building your credit.
But you need to make sure you can pay that higher rent and be able to secure your mortgage at the end of the rental period, because you don’t get your down payment contribution back.
For those millennials like Santos who are now part of a larger growing pattern, they’re just making themselves at home.
“Right now, if I were to lease the space, I would probably just break even. And that’s still making a loss. Right, because you still have to repair and maintain the space.”
He is hoping the market becomes more stable, so that others like him, can sit back, relax, and enjoy the fruits of their, and their parents labor.
