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Young adults belonging to the millennial and Gen Z generations may no longer prioritize the acquisition of a starter home. Recent data from the National Association of Realtors reveals that around 40% of individuals aged 25 to 44, who purchased homes in the previous year, intend to reside in their properties for 16 years or longer. Among homebuyers aged 18 to 24, this figure increases to 48%..
According to Jessica Lautz, Deputy Chief Economist and Vice President of Research at the National Association of Realtors, the traditional notion of a starter home has become less prevalent. A starter home is typically the initial property a person or family can afford to buy, often smaller and less expensive. Typically, homeowners reside in these dwellings for approximately three to seven years as they save up for their long-term or “forever home.” However, Lautz explains that the concept of buying an entry-level home with the expectation of rapid appreciation in value, leading to a sale after about five years, has diminished. This change is primarily attributed to last year’s homebuyers securing mortgages at low interest rates.
According to Black Knight, a mortgage software and analytics company, nearly two-thirds of all homeowners currently have mortgage rates at or below 4%. Unfortunately, this has led to a shortage of available properties in the market, as many potential sellers have chosen to delay listing their homes. Consequently, the limited inventory has intensified buyer demand and resulted in price growth, particularly for homes that are more affordable and well-presented.
The search for starter homes, typically ranging from around 750 square feet to 1,250 square feet in size and commonly situated in suburban areas, is increasingly challenging. According to the U.S. Census data on new home sales, only approximately 11% of homes sold in the first quarter of 2023 were priced below $300,000. In April, the average price of a new home sold was approximately $501,000, with a median price of $420,800. These figures indicate a trend of rising prices, making it more difficult to find affordable starter homes.
Among those aspiring to become homeowners, young individuals are prominent, and their inclination is towards making long-term investments rather than settling for starter homes that they would sell after a short period. Bank of America’s “2023 Homebuyer Insights Report” reveals that approximately 56% of both Gen Z and millennial individuals who desire to own a home have plans to purchase one within the next two years. Additionally, U.S. Census data indicates that, for the first time last year, the number of millennial homeowners surpassed the number of renters. In 2017, RentCafe’s analysis found that slightly over 11 million millennials were homeowners.
During the period from 2017 to 2022, the population of millennials who own homes witnessed a significant surge, with a 64% increase to reach 18.2 million. As for young individuals from the millennial and Gen Z generations who have not yet entered the homeowner market, one fact remains evident: there is no ideal moment to make the purchase. While certain prospective homebuyers might be waiting for the housing market to stabilize, it is impossible to determine whether it is preferable to delay or proceed with buying a home.
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