September 24, 2022

Can millennials save us from a housing crash?

Millennials have long been maligned when it comes to home buying, the butt of countless jokes that they could purchase property if they didn’t buy so much avocado toast

However, millennials are buying more real estate than ever before, and demand for homeownership among the cohort is soaring, even in an especially challenging market plagued by limited supply and skyrocketing mortgage rates.

Avocado toast tastes better in your own home.

According to Realtor.com, 76% of first-time homebuyers in 2021 hailed from either the millennial or Gen Z generation. And despite difficulties in entering the market in 2021, 72% of those surveyed said they still aim to own in 2022. 

While there’s no silver bullet to alleviate the strains on today’s housing market, experts say strong demand among millennials, still the largest American generation — paired with a rise in housing starts and shifting economic circumstances — is promising. In the long-run, millennials may not prevent us from a housing crash but they’ll play a large role in hindering it. 

For marketers, this provides significant opportunities to reach young buyers embarking on the increasingly digital journey to find a home.  

The largest generation transition to homeowners

While millennials face significant barriers to entry when looking to purchase a home, they also hold power in the market due to their sheer size and improving financial circumstances. 

“Millennials are the largest generation and the biggest amount of young adults today purchasing homes because they are in that peak homebuyer age group — 43% of home buyers in the last year were millennials, outpacing every other generation,”  Dr. Jessica Lautz, vice president of demographics and behavioral insights at the National Association or Realtors. 

43% of home buyers in the last year were millennials, outpacing every other generation.

And while many millennials have been dealt a difficult financial hand, recent policies like extended student loan pauses and advanced childcare tax credits are putting more cash in their pockets. 

According to Alison Schrager, an economist and senior fellow at the Manhattan Institute, millennials aren’t as down-and-out financially as often portrayed, and in fact in many cases are doing better than older generations.

“I see a generation in pretty good financial shape who, by and large, have been responding to a different economy and have made very sensible choices,” Schrager told NPR, regarding milllennials. “They've invested in themselves by getting more education. They're investing in their careers by living in cities where they have very dynamic labor markets.”

Finding solutions to limited inventory 

Still, as prospective homebuyers flood the market, one of the largest barriers is limited supply, with supply chain snags prompted by the pandemic and war in Ukraine placing significant delays on essential materials and resources. 

“When we're looking at the housing market today, we know that there are more housing starts and more builders saying that they're going to build homes, but starts don't mean a completed project,” Lautz said. 

Home construction increased at an annual rate of 6.8% in February, the highest jump since 2006, according to Forbes. However, as Lautz said, developing more starter homes isn’t a quick process nor an immediate solution. 

“The supply-demand imbalance is the primary reason home prices have escalated so rapidly,” Rick Sharga, executive vice president at RealtyTrac, told Forbes. “And after not building nearly enough houses for the last decade, homebuilders will take several years at least to add enough new supply to balance the market.”

While new builds will be a long-term endeavor, Lautz said she sees promise in recent efforts to increase affordable housing by repurposing empty retail space like malls and big-box stores, which were particularly hard-hit by the pandemic. 

“Vacant banks, malls, and hotels — even office buildings in some cities — are being looked at to turn into residential units,” she said. “That could be an opportunity to bring new units into the market that are affordable at a time where it's very hard to find all the materials to build a home.” 

Patience is a virtue

As high mortgage rates and limited availability unfortunately edge out some potential millennial buyers, Lutz said in the short-term it will help regulate the market by reducing the number of buyers and bringing rates back down. 

 

“We may see that there's fewer buyers in the coming year and that home prices would only increase 5% instead of double digits, which actually would be a healthier market,” she said. 

That shift may already be in process — mortgage applications at the beginning of April 2022 dropped 41% from the year before. Millennials, many of whom have grown accustomed to renting, may opt to hold out another year or two for conditions to improve, giving the market time to catch up.  

“It will take time to reduce the housing stock debt we have accumulated,” Odeta Kushi, deputy chief economist at First American Financial Corp, told Forbes. “The imbalance will continue to put upward pressure on house prices, even if they moderate from the peak pace of growth in 2021.”

What it means for real estate marketers

Real estate marketers aiming to reach Millennial buyers should focus their efforts on the digital journey. Younger buyers not only start their journey online, contemplating a move by browsing ILS platforms like Zillow, but are more likely to stay online throughout the process. These digital natives will do their research online, requesting information, applying for mortgages and even signing papers electronically. It’s best to meet them where they are—and its not in the newspaper’s Sunday print edition.

And, since fewer buyers will be able to cover new mortgage rates, digital advertising gives marketers a better shot at reaching and qualifying prospects using audience targeting and lead qualifying technology.

What it means for brand marketers 

Finding the right tone for your audience is advertising 101, but it’s even more important when reaching Millennial buyers who became consumers in an era of personalization. Aside from being digital-first, they expect messaging that reflects their generational reality. Bear Mattress did this successfully when targeting older Millennials with families fleeing expensive cities for the ‘burbs just last year.

Buying a house is hard, and giving up avocado toast is not going to get you over the line. Brands should acknowledge reality, congratulate them on their success and offer help in getting settled in their new homes.