“New normal” is a phrase we’ve become familiar with in this post-bubble real estate industry. It describes the current landscape of home prices that are lower than their peak but still healthy and steadily rising, stricter lending standards, and continued low (albeit slightly rising) interest rates.
But if you think about it, the term “new normal” really just connotes a recent change. I should know, I just had a baby five months ago – believe me, I’m living in a new normal.
So I’d like to point out another new normal: the situation of the Millennial generation.
I’m sure you’ve read reports saying that many young adults are putting off buying a house because they’re strapped with college loan debt (which, the New York Times aptly points out, is due to rising tuition costs outpacing income levels, among other reasons). More Millennials are returning to their parents’ homes after college to save money. They’re delaying both marriage and starting a family. Many of them are still trying to decide if they ever want to get married and/or have children.
But what else do we know about Gen Y?
Yes, they have higher student loan debt than previous generations, but they’re also more highly educated. According to the U.S. Bureau of Labor Statistics, 66.2 percent of 2012 high school graduates are enrolled in colleges or universities (71.3 percent of young women and 61.3 percent of young men), as compared to 61.7 percent of grads who went to college in 1992 and 49.2 percent 40 years ago. More are seeking higher post-graduate degrees as well. And overall, Gen Y has less debt from material items than older generations, shying away from credit cards and fancy cars.
There’s also one more thing we know about Millennials: They love houses — or at least the idea of a owning a home of their own. A whopping 80 percent of 25- to 34-year-olds say they are “optimistic about residential real estate,” according to a Prudential/HSF Affiliates survey taken in the second quarter and released Monday. That’s up 9 percent from the first quarter, even with the recent uptick in mortgage rates. This generation also embraces the emotional side of home ownership: 93 percent want a home for “more space for my family,” and 75 percent view it as “financial security to borrow against,” according to the survey.
So, they’re in their parents’ basements scrounging away what money they can. They’re not spending their income on cars, or charging up their credit cards (or buying diapers). They are, overall, a group of well-educated, pragmatic individuals who might not have their sights set on marriage, but no doubt plan to be home owners. Even if they can’t today, they will tomorrow.
What can you do to court these pragmatic future home buyers of America?
Educate young adults. Young buyers want their agent to counsel them and help them understand the home-buying process. What’s more, according to NAR’s Home Buyer and Seller Generational Trends report released in July, younger sellers are more likely to use the same real estate agent or broker for their future home purchases than older sellers. So building that agent-client relationship is especially significant to Millennials.
Help potential Gen Y clients become financially prepared. Advise young buyers on how to obtain a copy of their credit report and how to correct any errors. Show them how to save smartly and pay down debt. Let them know how much of a down payment they will need, whether it’s for an FHA loan or conventional mortgage, how interest rates affect their prequalification, and point them in the direction of a reputable mortgage broker.
Bottom line: Don’t be too quick to dismiss the “new normal” when it comes to Gen Y as a group of potential clients. “Normal” is the key word here, so you should make changes in your business accordingly. And if you stick by Millennials, they’ll stick by you.
Infographic: Prudential’s second quarter consumer outlook survey