Historically, real estate has been a significant driver of the U.S. economy, accounting for 17 to 18 percent of GDP. Most economic booms in this country have gained energy from rapidly growing real estate markets and when home buying increases, it pumps money into ancillary businesses as well, including sales of appliances, furniture, decorative home goods, electronics, and even outdoor and gardening merchandise.
So, retailers are holding their breath, looking forward to a full-blown millennial home buying spree. After all, how much longer will it take for millennials – the boomerang generation, post-college youths who moved back in with their parents – to decide to start establishing households of their own? (Around 40 percent of young adults are still living with their parents.) Over the past few years, there have been several upticks in home purchases by millennials, but the trend has yet to grow to historic generational expectations. Homeownership among young adults under age 35, stands at 35 percent of home sales, compared to 42 percent in 2007. Interestingly enough, however, not all millennials are waiting to get married to buy a home, single millennials accounted for 16 percent of first-time home purchases last year.
Builders are preparing for the anticipated onslaught of millennial home buyers by trying to figure out what younger buyers prefer in homes and how to provide that at an affordable price. According to the National Association of Realtors (NAR), home prices, having recovered from the Great Recession, soared to a median price for an existing home of $276,900 in June 2018, a price that creates an affordability problem for many buyers, especially younger clients. There has also been a problem with low inventory of homes for sale, in spite of dramatic increases in new construction in many regions. Other factors affecting millennial home buying are the generations’ preference to live in urban areas where homes cost more and issues with student loan debt.
There has been some recent softening in the residential market, which may bring relief to buyers if prices decline-assuming they do not decline too much or so abruptly and it triggers a recession. Analysts are cautioning that, “Annual home price appreciation has now slowed for five consecutive quarters…”, and further commenting that, “Moderating home price appreciation is good news for prospective home buyers.” Rising mortgage interest rates and new tax law changes on home-related tax deductions are also contributing factors to the slow down. Some areas have already recorded declines in home sales and/or prices. For example, condominium and co-op prices in New York dropped by eight percent, from April 2017 to April 2018. And warning signs were also seen in Southern California markets, where home sales in June fell to the lowest level in four years. These real estate markets have been among the most successful over the past few years.
Let’s put finance aside and take a look at what millennials want in a home.
Want a McMansion?-Millennials, Not so Much
Preferences vary sharply from the prior generation of boomers. Millennials are not dreaming about buying McMansions with peaks, turrets, baronial architectural details and tons of square footage. They prefer a much cleaner and simpler look, less pretentious and more intimate. Many prefer more contemporary architectural styles rather than traditional designs and prefer new construction over existing homes-unless they can afford a complete remodel to provide updates. Around the country, ranch-style, Midcentury Modern homes from the 50s and 60s are favorites-the epitome being classic Midcentury homes in areas like Palm Springs, California, and South Florida. Across the country, builders are offering retro-inspired new houses, filled with modern upgrades and the latest technology features. This is a big change from the Craftsman homes and fixer-upper bungalows favored by boomers when they started out. More daring millennials may choose contemporary, newly constructed houses or condos that look like stacked or cantilevered boxes of glass, metal and concrete, a style hugely popular on the west coast. The introduction of wood panels into the mix warms up these designs and makes them more appealing to a younger audience.
Joanna Gains is the New Martha Stewart
Another style popular with millennials is the updated “farmhouse”-a combination of rustic country and soft contemporary-for the look made popular by HGTV’s “Fixer Upper” series, starring Chip and Joanna Gaines of Waco, Texas. Joanna Gaines is this generation’s Martha Stewart, complete with a Magnolia brand magazine, cookbooks and a growing collection of merchandise. Millennials cannot get enough of barn doors, farmhouse sinks, beamed ceilings, reclaimed wood, shiplap walls and ceramic tile.
The Kitchen, the (Gray and White) Heart of the Millennial Home
Forget Millennial Pink, the real color preference of millennials’ is gray and white.
And designers and builders have gone overboard with providing contemporary, kitchens in combinations of gray and white: cabinets, tile backsplash, etc.-plus lots of stainless steel. This look has become formulaic for the many popular HGTV home renovation shows, and millennial consumers have latched onto it with almost religious fervor. (So many of these kitchens have come into the market, that years from now, this style may instantly signal a frozen-in-time look from the 2010s, the same way olive green and gold was a kitchen design theme long associated with the early 1960s.) Today, an up-to-date, impressive kitchen is key to a millennial buyer’s decision to purchase a home, and 10 percent of American households had kitchen remodeling or updating projects done last year-just ask Home Depot, whose sales are up-and many, perhaps the majority, of those projects were done in gray and white.
Hand-me-Downs? No Way!
The marketplace is accumulating a surplus of antiques and second-hand furnishings as grandparents die off and parents downsize. Millennials have no interest in that 18th century English chest-on-chest that belonged to grandpa, or in Mom’s beautiful set of formal china, left to them in wills. Auction houses are filling with what is called brown furniture: legacy antiques, estate furnishings, art and collectibles, and are dealing with sinking demand. In the market for high-end antiques, prices have dropped every year for the past 10 consecutive years, mainly due to lack of demand among newer generations. Millennials, who grew up when the country was flooded with cheap Asian imported goods, and who were (and are) distracted by the latest digital innovation, are accustomed to everything being brand new. They have an aversion to hand-me-downs and second-hand anything and have cultivated little appreciation for family heirlooms or items with historical significance, all seen as representing the stuffy, more formal lifestyles of past generations. Millennials are perfectly happy with home goods from Ikea, Crate & Barrel, Target and Wayfair.com, and are likely to see purchases of home furnishings as disposable, temporary selections rather than lifetime value investments.
Boomers/Millennials at Odds
As retiring boomers, who own two out of every five homes in the country, move to sell their homes, there is a growing mismatch between buyers and sellers. Millennials have neither the financial means nor the desire to lay out the big bucks boomers expect to get for their bigger, more expensive suburban homes as they downsize, switch to rentals or move to senior health facilities. Fannie Mae warns that we may see a glut of undesirable homes for sale in coming years and that the number of these homes coming into the market could force price moderation. Of course, if prices fall enough, and if millennials do eventually decide to establish large families that will fit in those larger homes, they may be in a position to benefit from boomers who are hard-pressed to sell.
Other Millennial Preferences
Open-concept floor plans, a bathroom for every bedroom, large closets, walk-in showers, a private outdoor space suitable for living and entertaining, a home office or hobby room, a doggie shower in the mudroom/laundry, walking/hiking trails and dog walking paths, social context and close proximity to great restaurants and shopping. (Having a Trader Joe’s or Whole Foods Market within a mile is a big selling point, and according to real estate research, actually adds dollars to the price of nearby homes.) Millennials are not as concerned with amenities as the boomer generation, and they are not as attracted to swimming pools (except in warm weather/resort settings or in high-rise condos in big cities like New York), community gyms or tennis courts, and most especially, don’t look for them to buy golf-course homes-millennials are not lining up to tee off.