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Deciphering the Code of the Millennials – Part I

Where millennials are buying homes

Bret Fortenberry    |    Housing Trends

In a recent CoreLogic Insights Blog, Chief Economist Frank Nothaft discussed the impact of millennials on the housing market. As a follow-up, this edition will share perspectives on where millennials purchase homes based on CoreLogic research data.  Millennials are a key demographic for real estate marketing.  The millennial population size exceeds the baby boomer population and is now at the prime home-buying age.  However, current trends show that many in this demographic are choosing to rent rather than purchase a home so it’s important to understand their buying behaviors in order to tap into this large pool of prospective homebuyers. To review these behaviors, CoreLogic analyzed over 70 metrics associated with mortgage purchases by millennials across the nation over the past year. The research shows that millennials are buying in markets they can afford, and specifically, where there are good paying jobs and home prices are low.

CoreLogic ranked all counties with a population greater than 200,000 to determine the percentage of millennial mortgage applications.  The heatmap in Figure 1 shows the counties that have the highest percentage of millennial purchases (dark orange) and those counties with the lowest percentage (light yellow) The top ten ranking counties are in green and the bottom ten ranking counties are in blue. 

The top ten and bottom ten counties for home purchases among millennials are listed in Table 1.    Millennials are more likely to purchase homes in the middle of the U.S. where home prices are more affordable rather than along the coasts where homes prices are higher.  The amount that millennials make is not as much of a factor as the affordability of the housing market.  This is most likely due to the higher percentage of millennial first-time buyers with limited equity for the down payment.  The top ten counties have a higher mean millennial income level compared to counties with comparable housing markets.  Additionally, the top ten counties contain mortgages in which the borrower has a higher front-end ratio, which highlights affordability as the driving factor for millennials. 

Top 10 and Bottom 10 Counties for Millenial Home Purchases

Top 10 and Bottom 10 Counties for Millenial Home Purchases

One might anticipate that the top millennial homebuyer markets would have a higher rent-to-mortgage monthly cost ratio such that it would be cheaper to pay rent than monthly mortgage. On the contrary, the rent-to-mortgage cost ratio is similar in the top ten and the bottom ten counties.  This suggests the monthly mortgage payment is not a factor keeping millennials from purchasing homes but rather the initial cost.  Many millennials face the challenge of having low to no credit or not having the down payment to qualify for the loan. It is also probable that many millennials do not even apply for loans because of a false perception that they will not qualify. 

Another factor is that millennials are more likely to purchase a home when they move away from their hometown.  More specifically, when moving to an area with a higher concentration of millennials.  Two main factors that contribute to people moving are job opportunities and college with job opportunities being the main driver. Although there are a few counties in the top ten list known for colleges, a majority of the areas are not college destinations.  For example, Denver is not a college town but does have more job opportunities than other regions in the area.  However, there are many nearby areas with colleges (Boulder, Fort Collins, and Colorado Springs), which contributes to millennials leaving their hometown.  Denver is the closest region known for high paying jobs and is a great opportunity for millennials to stay in Colorado after graduation. 

Millennials are also purchasing homes in counties that neighbor larger cities such as Utah and Weber UT, Weld, CO, and Clay, MO.  As millennials move to larger urban areas, many are finding more affordable housing in bordering counties and choose to purchase there while still taking advantage of job opportunities and amenities in the larger metropolitan area.

Understanding the specifics of where this important demographic group is buying homes sheds light on the patterns and trends that will determine the millennials’ impact on the housing market. One thing is for certain, they aren’t  their parents when it comes to buying a home. 

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