The Boston area real estate market, like most housing markets throughout the U.S., presents a challenge for that segment of the population commonly referred to as “Millennials.” Millennials are generally identified as men and women between the ages of 25-34. Let’s look at the ongoing dilemma many Millennials face in today’s complex real estate environment.
Boston Area Real Estate: Where Do Millennials Fit?
It wasn’t long ago that home ownership was a goal every red-blooded, hard-working American citizen aspired to achieve. Parents scrimped and saved to provide their children with at least a portion of the down payment needed to buy their first home. Home ownership was viewed as an expectation by some, and a mark of success by others. Being able – or willing – to buy a home was somewhat of a rite of passage, after all, who wants to “throw money away” on rent each month?
Today, more than a few things have changed – no doubt as a result of what a large segment of Millennials have personally experienced – shaping their thoughts, opinions and goals. During the housing crisis of less than a decade ago, millions of Millennials witnessed firsthand the effects foreclosure can have on a family. Even if they weren’t directly affected by rampant foreclosures, they surely know friends or relatives who were. It’s perfectly understandable that for many, the scars associated with the financial battles they and their families faced were both real and memorable.
Couple the housing crash with a recessionary economy and a job market that consistently failed to meet their growing expectations and it’s no wonder many Millennials who probably could be buying homes have opted not to for now.
Boston Area Real Estate: Statistics
Generation Progress, a national progressive advocacy and action network for young people, recently cited data from the Bureau of Labor Statistics. They expressed an optimistic outlook of the current Millennial labor participation market. Generation Progress said for older Millennials – between the ages of 25-34 – the participation in the U.S. labor force is much higher than the national average. While many Millennials are working again and presumably earning more, the possibility of buying a home is a reality within reach. The question that remains, however, is will they buy?
For many of these potential first-time purchasers, the home buying process is rather daunting. They are finding that a home they can afford now may not fill the bill for their “forever home.” Even though the cozy little two-bedroom starter home is affordable and larger than their one-bedroom apartment, Millennials are pausing to ask themselves, “What happens when we want more room, start a family, or want to move to a nicer neighborhood?” When you’re young, the chances of outgrowing your first home are pretty good. Thus, the Millennial dilemma continues. Should they buy a home they can afford now knowing they will want to move sooner than later, or keep saving for a down payment on a larger home?
Consider this statistic, courtesy of the National Association of Realtors: “… for the last three years, Generation Y/Millennials (buyers 18 to 35) is the largest share of home buyers at 35%.” So, the good news is a number of Millennials have entered the Boston area real estate market and have purchased homes. Let’s take a quick look at the positives and negatives that Millennials still wrestle with.
Boston Area Real Estate: Positives
Nationwide, home prices are expected to continue to rise through the rest of the year. In addition, mortgage interest rates are still very low – despite rumblings from the Federal Reserve that they won’t stay low. Simply put, it’s a good time to buy a home. The most important thing to consider is compared to next year, today’s Boston area real estate market may look like a bargain.
Boston Area Real Estate: Negatives
While many Millennials may have saved enough money for a sufficient down payment, some may not realize that’s only the beginning of their cash needs. In order to close a home sale they’ll need closing costs, property taxes, homeowners insurance, maintenance, utilities and more. In addition, if they plan to do any remodeling, even painting or re-carpeting, they’ll need additional money.
Experts say maintenance and repairs usually run home owners 1% – 2% of their mortgage costs annually. So, conservatively, if your mortgage is $150,000 that 1% would cost you roughly $1,500 per year, or $125 per month. Another point to consider: If you move to the suburbs and have formerly been a one-car family, you may now need two cars. Statistics show most Americans spend nearly half of their household income on housing and transportation.
Millennials, like most first-time home buyers will eventually learn their best option may be to buy something now they can get into relatively inexpensively while interest rates are low and prices haven’t gone any higher. Then, as the newly-acquired property appreciates they can sell and move up to a larger home – hopefully enjoying the profits of their investment. With soaring rents nationwide, that may be more appealing than continuing to pay rent.
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