Realtor.com Chief Economist Jonathan Smoke shared some surprising new research about Gen Y at the recent National Association of Realtors conference: 2015 will probably be a watershed year — in fact, in may be the year when “Gen Rent” becomes “Gen Own.”
Given the abysmal drop in first-time buyer sales from 50 percent in 2010 (when the First Time Buyer Tax Credit was still in effect) to only 33 percent in 2014, it may seem unlikely that 2015 will see a major increase in first-time buyer activity.
According to Smoke, “2015 is the cusp of what the housing market will look like in the future. Millennials (Gen Y) will account for approximately two-thirds of the new households formed in 2015. They represent 37 percent of today’s home shoppers and are 59 percent more likely to buy a house in 2015. They are also more likely to rate you.”
Moreover, Gen Z (those born between 2001 and approximately 2020) will probably be even larger than Gen Y. According to Smoke, 2015 may surpass 2007 with the largest number of births ever in the United States. For the Gen Yers birthing these children, they definitely believe, “Baby needs her own room.”
Renters by necessity, not choice
Many people have assumed that millennials have been renters by choice. The realtor.com research shows that it has really been more by necessity. During the recession and the recovery, high-wage jobs were replaced by lower-wage jobs. In fact, Gen Y has already formed 30 million new households. Unfortunately, only 17 percent of these households are homeowners.
The press has portrayed Gen Y as slackers who live in their parents’ basements. The current statistics show something quite different. Although the unemployment rate has increased slightly for both Gen Y and for baby boomers over the age of 55, the unemployment rate for Gen Y is still at 6 percent.
Nevertheless, Smoke observed, “2014 was a year of banner job creation for millennials. There were 60 percent more jobs created in 2014 for millennials as compared to the rest of the population. The main reason that they are choosing to buy now is that they have a stable job and have been able to save up a down payment.”
Millennials are not only the most highly educated generation, they are highly driven. Twenty percent aspire to climb to the top of their chosen profession.
A major block to their homeownership has been their student loans. The average student loan debt is $25,000. As they have obtained good jobs, however, Gen Yers have been able to pay off these loans and begin saving toward a down payment.
The lending environment also continues to be a challenge. The average credit score is 630, while the average declined FICO score of loans that failed to qualify was 700.
Gen Y is also more ethnically diverse. Most of the new household growth will be driven by non-white buyers. These new buyers are also more likely to be single and female.
Where to market to millennials
According to Smoke, millennials aren’t reading the newspaper. They also aren’t watching television, with the exception of all the real estate shows. Radio and magazines are more efficient, but the best way to reach them is through text messaging and social media.
Where they are buying
The stereotype is that Gen Y wants the hip lifestyle in urban areas. The truth is that only 15 percent are looking for this lifestyle (as compared with 9 percent in other age groups). Seventy-two percent are looking in the suburbs. Part of this is being driven by life events, such as a wedding or a new baby.
Not surprisingly, the rate of millennial homeownership is lowest on the coasts and highest in the heartland. The top two cities with the highest rates of millennial homeownership are Grand Rapids, Michigan, and Des Moines, Iowa.
Millennials — good news for Realtors
Like the generations before them, millennials don’t want to deal with a landlord. Moreover, the realtor.com research shows that Gen Yers believe real estate is a good investment.
The good news for Realtors is that Gen Y is more willing to work with a Realtor than any other generation. The only thing they believe that they can do better than a Realtor is locate the property. Everything else is something with which they need assistance.
Where to find business opportunities
Smoke cited three different ways for agents to convert millennials into leads for their business.
First, as rates will probably be climbing in the not-too-distant future, many institutional investors may decide to exit the residential real estate market. While you may not be able to convert the institutional investor into your client, you could represent the buyer purchasing this property.
Second, many millennials are currently renting. For those who are in a condo or single-family rental, you could represent the tenant on the purchase of their current home.
Third, instead of purchasing a closing gift, a way to potentially generate quite a few referrals is to offer to pay two months of your client’s student loan payments (up to $300 per month, which is the average payment) at closing. This can help them get through their move and you can pretty much be assured that they will tell others about your generosity.
If you haven’t included working with millennials as a key part of your business plan for 2015, it would be a smart move to do so. They value your services as a Realtor, are the group that is most likely to buy, and if you do a great job, they’re the group that is most likely to tell everyone about the great service you provided.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Discover why leading Realtor associations and companies have chosen Bernice’s new and experienced real estate sales training for their agents at www.RealEstateCoach.com/AgentTraining and www.RealEstateCoach.com/newagent.