It took them a while, but millennials have finally entered the housing market. Once they entered, it didn’t take long before they made up the largest share of all home buyers. However, there’s a catch: Clever Real Estate’s recent study of millennial homeowners found that, as a group, they’re struggling with homeownership, especially when compared to older generations.
Considering that millennials are such a large and growing group of home buyers, it’s in the interests of real estate agents everywhere to help them become more comfortable owning a home. So what can you do?
First, let’s look at how many millennials are unhappy homeowners, and why, and compare those numbers to homeowners from the Baby Boomer generation.
While only 13% of Baby Boomers reported feeling stressed about their homes, millennials reported home-related stress at twice that rate. This is even more alarming when you consider that 68% of Baby Boomers have lived in their home for longer than a decade, while 61% of millennials have been in their homes for less than five years. It seems like millennial homeowners skipped the honeymoon period and went straight to regret.
And they do have regrets. Our study found that nearly half of millennial homeowners had buyer’s remorse. Contrast that to the 20% of Baby Boomers who regret buying. What accounts for this difference?
Like so many aspects of owning a home, it comes down to money. Millennials entered a shaky economy carrying high levels of debt. As a consequence, many of them had trouble scraping together a down payment. In fact, 67% of millennial home buyers put less than the standard 20% down, which led to higher than expected mortgage payments, and required mortgage insurance on top of that. That double whammy probably accounts for a lot of millennial dissatisfaction, and our study found that the most commonly cited reason for millennial home buyer’s remorse was that their mortgage payments were too high.
But it doesn’t stop there. Millennials gravitate towards fixer-uppers, which means they have to undertake major renovations. A staggering 80% of millennials are planning major home renovations in the next five years, and millennials are planning 49% more renovations than Baby Boomers. If they’re already having trouble with their mortgage payments, adding the expense of major renovations just adds to their stress.
To be fair, some of their financial choices are making their situations even more difficult. Millennials are twice as likely as Baby Boomers to fund their home renovations with a credit card, and three times more likely to fund them with a personal loan. If you’re making huge mortgage payments because you only put 3% down, paying mortgage insurance on top of that, and undertaking massive renovations that you’re funding with a credit card that’s charging you 17.5% APR, it’s only logical that you’d have a little financial anxiety, if not outright buyer’s remorse.
Homeowner personal finance needs to start with a real estate agent that can show millennials the ropes. So much of millennial home buyer discontent could be avoided with a little basic education.
If you’re helping a millennial buy a home, make sure they understand the true costs of homeownership. In our study, we found that the average homeowner spends approximately $2,676 on home maintenance and repairs, $6,649 on home improvements, $2,600 in property taxes, and $1,228 on homeowners insurance in a typical year. That comes to a total of $13,153 a year, every year, above and beyond the mortgage payments. That’s the type of unforeseen expenditure that can ruin your year, every year.
Home buyers of every generation, but millennials especially, think that once they close on their new home, their work is more or less done. So it’s a nasty surprise when they find out how much ongoing maintenance is required on their home. Our study found that the sheer amount of required maintenance was the single largest source of home buyer’s remorse for millennials.
And while maintenance is expensive, that’s not the only cost. We found that 57% of homeowners spend more than five hours a month on home maintenance and repairs. That five-hour estimate can go up dramatically if the home is located in an environment that’s unusually hot, cold, or wet. If you’re selling a home in a place like, say, the frozen tundra of Minnesota, make sure the buyer understands the added maintenance demands, in terms of both money and time. Winter and rain wear heavily on homes.
Then we come to the renovations. Few homeowners have a realistic idea of how much renovations actually cost. One study found that homeowners spent an average of $6,649 on home improvements in 2018, but that number ballooned if they took on a major home project.
The most popular renovations are landscaping, new floors, kitchen and bathroom remodels, and patios and decks. These aren’t cheap. The average bathroom remodel costs around $9,723, and the average kitchen remodel costs $22,134. To make matters worse, homeowners often sorely under-budget for these projects and end up paying two or three times more than they planned. If you’re selling a fixer-upper to a millennial, it’s worth taking the time to go over exactly how much potential renovations could end up costing them.
Even something as elementary as property taxes is worth bringing up, especially if you live in a high-tax state. For example, New Jersey homeowners pay five times more in property taxes on the average $206,000 home than homeowners in Alabama. All these little costs can sneak up on an unwitting home buyer.
Another expense that can surprise the novice home buyer is closing costs. Many buyers think that the down payment is the only money they’re putting down, only to find out at the last minute that they’re responsible for more fees. According to Zillow, the average closing costs in the US are $3,700, so make sure your millennial home buyer is prepared.
Why should you take it upon yourselves to educate millennial homebuyers? Well, it’s the ethical thing to do, and besides, if you don’t do it, you’re going to rack up a lot of unhappy clients, which is just bad business. Or do you prefer the idea of trying to explain to an endless series of prospective millennial home buyers why the previous millennial owner ditched their half-renovated fixer-upper after only a couple years?
This article has been contributed by Ben Mizes from Clever Real Estate.