Millennials Are Largest Demographic Gap In Current Home Buying Market

What was once the peak market for becoming a new homeowner has seen a large dip, according to a new report by Redfin. In recent years, homeownership amongst the 25-34 age group has dipped from 41% to 38%. With a medium income of $74,000, affordability should not be a problem. However, many are choosing to live in urban areas near work where cost of living limits the ability to save for a down payment, which averages out to $80,000 in a desirable neighborhood.

Those blessed with generous parents are finding a way over the hurdle.

“Last year, 27 percent of those purchasing a home for the first time received a cash gift from relatives or friends to come up with a down payment, according to data from the National Association of Realtors. That’s up from 24 percent in 2012 and matches the highest share since the group began keeping records in 2009.”

For the rest, home-buying remains a challenge.  They look to low down payment government programs, but those have their own pitfalls – such as mortgage insurance premiums and low maximum loan amount.

“Many first-time buyers turn to FHA loans because of the low down-payment requirement of just 3.5 percent, but Hsieh says that the higher mortgage insurance premiums and low maximum loan amount in many areas make these loans less appealing to many borrowers.” 

Millennial buyers in urban areas don’t necessarily have the option of buying a lower-priced home.  Loan limits in the federally-backed programs leave out much of the available inventory in the areas in which they live. At the same time, investor competition at the lower-end of the market is pricing out prospective owner-occupants.

 “Inventory for the lowest-priced homes has decreased while prices have increased,” Richardson says. “At the same time, there’s more competition with cash buyers, both individuals and investors, for less expensive homes. The whole notion of a first-time buyer purchasing a fixer-upper and using sweat equity to build up an asset is pretty much gone because these buyers can’t compete with all-cash offers.” – Nela Richardson, chief economist for Redfin.com

Equity finance offers a compelling solution for this group of buyers. FirstREX’s REX HomeBuyer program will provide up to half the down payment required on a home purchase.  With REX HomeBuyer, buyers can consider a wider range of home prices, lower their monthly payments and most importantly – put less money down.  A true equity investment, the program requires NO interest or monthly payments from the homebuyer on the cash contributed.  Instead, buyers share part of the appreciation of the home, if any, when they sell. Buyers using REX HomeBuyer need a bit more cash of their own (10%) than for government programs, but they can avoid paying mortgage insurance altogether. For millennials with decent credit and sufficient income, REX HomeBuyer may be able to provide the perfect financing solution.