The new year is bringing about a rash of changes, from new technologies and trends, to new marketing techniques, and of course, a new administration. However, year to year, administration to administration, one thing has remained concept: the American dream of home ownership. Depending on which source you read, studies show that 70-80% of Millenials desire to own their own home. However, for many Millennials, this feels impossible.
For this article, we will refer to those born between 1984-2004 as Millennials, or 91.5 million Americans. With Millenials making up the largest proportion of the population, it’s no surprise that marketers have focused their efforts on appealing to this group. However, with student loan debts piling up, interest rates rising, and saving becoming harder, many millennials are delaying their plans for home ownership.
Adjusting for inflation, the “average cost of tuition and fees at a private, non-profit, four-year university” has increased from $1,832 in 1971 to $31,231 in 2015, says CNBC reporter John W. Schoen (2). Schoen also notes the rise in price of public colleges: “Tuition and fees cost about $9,139 this year . In the 1971 school year, they added up to less than $500 in current dollars.” This increase has left the average student with a student debt of $37,000 at graduation (3). The average monthly student loan payment? An incredible $351 (4). This severely limits buying power with the current debt-to-interest requirements on mortgages, particularly conventional loans. Most Millennials are unable to obtain a conventional loan anyways, because of having lower credit scores than are required.
The next problem facing Millennials is the rising interest rate, which is also severely limiting buying power. As one reporter writes, “Since October, 30-year mortgage rates have increased from 3.42 percent to 4.2 percent and, as a result, since September, the median mortgage that borrowers under 35 could afford dropped from $120,000 to $109,000 as of early January.” (5). This lack of buying power is the biggest problem Millennials cite as an obstacle to home ownership: many cannot find a that is “sufficiently priced.” Most Millenials are completely priced out of buying new homes, due to a lack of “starter home” inventory from new home builders (6).
Most Millennials are completely priced out of buying new homes, due to a lack of “starter home” inventory from new home builders.
Completing the trinity of problems facing Millennials is the difficulty of saving for a down payment. One of the main reasons for this hurdle? Rents are rising faster than any other category in consumer pricing (7). Although many Millennials realize that owning is better long-term, and may even be less expensive, than renting, the strain on the budget prevents savings. Jonathan Spader, a Senior Research Associate at Harvard’s Joint Center for Housing Studies says, “In 2014, 49.3 percent of households were spending at least 30 percent of their income on rent, near the all-time high. In addition, 26 percent of households spend at least half of their income on rent. What we’ve seen over the course of the last 15 years is a consistent, upward climb,” which is greatly outpacing inflation (8). Although a down payment may be possible with down payment assistance programs, many Millennials don’t know about them.
Many Millennials don’t know about down payment assistance plans that could help with the purchase of their first home.
With all of the difficulties facing Millennials, how can new homebuilders make the prospect of home ownership feel more tangible to the largest buying group in America? Here are some of our suggestions.
One of the key issues here is a lack of education on the part of Millennials. As we mentioned, most Millennials aren’t aware of programs such as down payment assistance. By providing a breadth of resources on your website, you will accomplish two important goals. First of all, you will increase your SEO value, making your site more “findable” in Google search results. This can increase brand awareness and website traffic. Secondly, and perhaps more importantly, you will position yourself as a source of credible and helpful information, establishing a relationship of trust with your site visitors. Building trust with your consumer is essential, especially on the internet, where consumers are already more dubious.
As we’ve discussed before, first impressions are basically indelible. Make a good first impression by offering helpful information to young adults facing one of the most challenging times of their lives – not only on your website, but also in person. Provide information on different types of loans, their requirements, and their pros and cons. Obviously, you will not be able to provide as much information as a lender, but basic information can help homebuyers (of all ages!) feel more comfortable. You can also offer resources such as a debt-to-income calculator or mortgage estimator. Even if a customer is not able to meet your price point, the first impression will last and it is more likely they will return to you when they are ready to purchase a move-up home.
A second technique is to offer closing cost incentives. If you have information on your website about what goes into closing costs, this is a great place to explain your incentives. You could also advertise them on your website home page and property pages, on inventory price sheets, and social media. Here is an example from Mobley Homes:
This can be a terrific help with Millennials who are struggling to scrape together a down payment. Setting a time limit on the incentive (for example, “From now until March 31!”) can add urgency, one of the four factors of impulse buying. Although a home purchase isn’t exactly an impulse buy, the incitement can help. Just be sure to give customers enough time to feel like they are still making a well-thought-out decision. Of course, the time spent shopping for a home varies widely from person to person, We suggest running an incentive for about 30-45 days. This way, a buyer doesn’t feel over pressured or rushed.
Finally, if you can, consider adding more starter homes to your list of available floor plans. Some builders offer townhomes and villas in addition to single family homes, which can be a great solution for the Millennial buyer. If you do offer these homes, make sure to use targeted marketing to get your message to the right demographic. Social media, search engine marketing, video marketing, and other online techniques are perfect to reach this smartphone-addicted generation!