Trulia reported that for those in the Millennial bracket with the most buying power, purchasing a home is currently 23 percent cheaper than renting.
Now is the best time to buy since 2012’s low-interest rates. However, getting millennials from renting to buying carries a unique set of challenges that both those who sell and those who finance to this group need to address.
Trulia publishes a periodic Rent vs. Buy Report and has a tool on its website that allows users to figure out the difference between what they are paying or would pay for rent versus what buying home costs.
For its tools and reports, the company traditionally assumes a 30-year fixed rate mortgage with a 20 percent down payment and figures a household move every seven years.
However, the situation for people who are 25 to 34 (the upper bracket within Millennials) is different.
For one thing, that age category today tends to move every five years and most can only afford a 10 percent down payment, according to the Census Bureau’s American Community Survey.
Trulia’s latest report takes those considerations into account and also assumes a 3.85 percent mortgage rate on a 30-year fixed rate loan for a household that itemizes tax deductions, within the 25% tax bracket.
That’s how the 23 percent cheaper buy-to-rent ratio comes in, and it applies in 98 of the nation’s top 100 markets.
While that may not sound as good as 36 percent cheaper to buy than rent -- the overall average rate among all areas of the country and all ages -- it’s significant enough to show that now is a good time to look at this group as potential business and to appeal to them based on transitioning to ownership.
Who They Are
There are some realities in real estate and finance that anyone appealing to this group face, however, beginning with the fact they have been marked by the Great Recession.
They are more cautious in borrowing than previous generations of younger home buyers. They have a deeper mistrust of financial institutions.
They have faced a period of great job uncertainty and some settled for jobs they didn’t want. Many of those who went to college face steeper college debt levels than ever before.
From the positive side, the Millennial generation is both less motivated by financial gain than older generations and more knowledgeable about what a credit score is than other generations were at the same age.
They have also seen several years of a more positive economic atmosphere, which means they may very well be looking at now as the time to commit to a home.
To take advantage, look at ways to address who these people are.
What to Consider
A particular challenge for lending agents is finding a way to get Millennials to trust.
Transparency and education may be the paths to building that trust.
This generation has become used to getting nutritional content from restaurants even when it’s not always good news, seeing the progress of a pizza they ordered as it’s cooked and knowing exactly where things are in real time.
Millennials do their initial shopping online, including getting data to make major decisions.
The other way to build trust is to let customer value do the driving.
Trust is something that must be gained, but it begins by being there when the home buyers reach out.
Do your customer relationship management tools connect with potential homeowners in spots where they truly might need you?
Millennials are not a generation that thinks technology is simply “cool.”
They grew up with it. It's an expectation. More than any generation before them, Millennials are in constant contact with other people and are used to communicating during most of the hours they are awake.
Some have labeled this generation, because of its financial challenges, the “sub-prime” generation. However, there is one reality that can’t be denied.
The Pew Research Center reported early this year that 2015 marks the year Millennials surpassed Generation X to become the largest share of the American workforce.
They are the future of real estate and lending, even if they take a bit longer to get to the point of buying.