2021 Millennial Home Buyer Report

Michelle Delgado
Dr. Francesca Ortegren

By 

Michelle Delgado

 & 

Dr. Francesca Ortegren

August 3rd, 2021
Updated August 3rd, 2021

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Nearly a year after the pandemic brought a wave of lockdowns, travel restrictions, and other sweeping changes to daily life, millennials are eager to purchase homes of their own.

Millennials want homes that are both affordable and spacious, especially as we enter an era of remote work and decreased access to public spaces. Nearly one-third of millennials (30%) say COVID-19 pushed them to begin house hunting earlier than they originally planned.

But with home prices leaping 8.4% in the past year — and projected to rise an additional 10.5% in 2021 — millennials are facing the reality of skyrocketing demand and vanishing inventory.[1]

For Clever’s annual Millennial Home Buyer survey, we asked 1,000 people who are planning to purchase a home in the next year about their hopes, anxieties, and the compromises they’re willing to make to become homeowners.

We compared this data to previous years to provide a clear snapshot of millennials’ home-buying experience — and the obstacles that may stand in their way.

Key Insights

In a competitive market, millennials are willing to bet on riskier homes: 71% would be willing to buy a fixer-upper, and nearly 80% could be persuaded to buy a home sight unseen.Compared to last year, nearly four times as many millennials (40%) cited low interest rates as the reason they’re house hunting.After a year of sheltering in place, millennials are looking for homes around 2,400 square feet — a 41% increase from last year.57% of millennials have more than $10,000 in savings — a 36% increase from last year. But two-thirds are planning to put less than 20% down on their homes.77% of millennials surveyed have student debt — and of these, more than 80% say $10,000 of student loan forgiveness would make an impact on their finances.52% of millennials are stressed and anxious about homeownership — with nearly half fearing hidden costs that could derail their tenuous finances.

In a Competitive Market, Millennials Are Willing to Bet on Riskier Homes

Fierce competition for homes may be pushing millennials to expand their house-hunting criteria.

Millennials are undaunted by homes that need major repairs: 71% say they’d be willing to purchase a fixer-upper. Similarly, 62% of boomers are also open to rehabbing a house, a significant leap from the 46% who said the same in 2019.

Although a fixer-upper might seem like a steal, they can be costly to repair and maintain — a major challenge for millennials whose cash reserves are wiped out after purchasing a home. Additionally, those in seller’s markets may be unable to obtain repair credits frol sellers at closing, potentially turning a deal into a money pit.

Even more concerning, 29% of millennials say they’d buy a home after seeing only photos or virtual tours. Of these:

  • 44% would buy a house just after viewing photos
  • 31% would require a pre-recorded virtual tour
  • 26% would require a live virtual tour

The remaining 6 in 10 millennials don't necessarily have a hard rule against buying sight unseen — two-thirds of them said they could be convinced to buy a home without seeing it first under some circumstances, including:

  • Someone the know can look at the home on their behalf (59%)
  • Great price point (51%)
  • Newly constructed home or no previous owners (39%)
  • Seller concessions, e.g., waived inspection fees, covering closing costs, repair credit, etc. (39%)
  • Low interest rates / fear of interest rates rising in the near future (28%)
  • High competition from other buyers (21%)
  • Inability or unwillingness to travel due to COVID restrictions (14%)
  • Disliking current living space (12%)
  • Something else (7%)

Although these tactics might help millennials become homeowners, they also carry the risk of ending up with a home that has major issues.

We surveyed recent homebuyers in mid-2020 and found that people are more likely to regret their home purchase when they don't see their home beforehand.[2] In fact, more than 75% of those who bought a home without seeing it first reported some buyer's remorse — 27% more than those who did see their home in-person before buying it.

If millennials are determined to put in an offer on a home sight unseen, they should at least require an inspection contingency. This would allow them to back out if the inspection revealed major issues such as water damage, structural problems, or other costly repairs.

Millennials Want to Take Advantage of Historically Low Interest Rates

Millennials’ willingness to consider riskier properties can be linked to urgency inspired by historically low interest rates.

In December 2020, Freddie Mac announced that fixed-rate mortgages averaged 2.66% — the lowest rate in the survey’s nearly 50-year history.[3]

For 40% of millennials — nearly four times as many compared to last year — low interest rates are the biggest factor motivating them to buy a house.

In fact, low interest rates were the fifth-most-common reason those who don't like the idea of buying sight unseen might reconsider their stance on the issue.

Although interest rates have begun to tick up again, the Mortgage Bankers Association forecasts that they will likely remain low throughout 2021 — potentially prompting more millennials to buy out of fear that the market will turn.[4]

After a Year of Sheltering-in-Place, Millennials Want Larger Homes

Between pandemic-mandated remote work and school, millennials feel cramped in their current homes. Approximately one-half cite their need for more space as their biggest motivation for homeownership, up from less than one-third in 2020.

Today, millennials are looking for homes around 2,400 square feet. Though smaller than the ideal boomer home (which is currently around 2,550 square feet), it’s a substantial leap from the approximately 1,700 square feet millennials wanted when we surveyed them before the pandemic broke out last year.[5]

The desire for more space is likely an artifact of having spent so much time in their homes since shelter-in-place and social distance ordinances have been in place.

Millennials are not just looking for bigger homes, though. They are interested in spaces that allow them to work and play at home more comfortably. With more people working remotely during the pandemic, they're twice as likely to require dedicated office space this year compared to last.[6]

When it comes to non-working hours, millennials want large kitchens, outdoor spaces, and are 33% more likely to desire a pool or hot tub than they were last year.

Among sought-after features, more space is a theme. Millennials are looking for:

  • A garage (61%)
  • Large kitchen (60%)
  • Outdoor living space (45%)
  • Lots of natural light (44%)
  • A basement (43%)
  • Space to “grow into” with a family (43%)
  • Open floor plan (41%)
  • Walk-in master closet (39%)
  • Dedicated office space (31%)
  • Eco-friendly and energy efficient features such as geothermal heating, solar panels, sustainable materials (27%)
  • Pool or hot tub (20%)
  • Guest home or mother-in-law suite (17%)

In their search for larger (but still affordable) homes that check off items on their wish lists, nearly 30% of urban-dwelling millennials plan to relocate to the suburbs.

Millennials Have More Savings in 2021 — but Still Struggle to Afford Down Payments

At the start of 2021, millennials have more in savings than previous years: 57% of millennials have more than $10,000 in savings — a 36% increase from last year — and only 11% have less than $1,000 saved, compared to 26% last year.

These savings come from a variety of traditional strategies and COVID-era realities, including:

  • Saving a portion of income over time (79%)
  • Cutting back on non-essential spending (49%)
  • Stimulus check (33%)
  • Finding an additional source of income, e.g., second job or side gig (28%)
  • Using money that would have gone toward a now-deferred loan, e.g., student loans (22%)
  • Moving in with family (20%)
  • Shelter-in-place orders, e.g., reduced travel and outings (18%)

This echoes a larger economic trend, as personal savings rates continue to remain elevated after a major spike during the initial pandemic lockdowns, according to the Federal Reserve Bank of St. Louis’ Economic Research Division.[7]

Compared to last year, millennials are 40% more likely to use these savings for their down payments — rather than money from family or other sources. Top strategies for covering a down payment include dipping into:

  • Personal savings (67%)
  • An investment account, e.g., retirement or stocks (24%)
  • Emergency funds (17%)
  • A personal (non-mortgage) loan from a financial institution (19%)
  • A loan from a friend or family member (16%)
  • A gift from a friend or family member (16%)

Faced with the reality of tight budgets, nearly 7 in 10 millennials are searching for homes priced at less than $300,000. Of these, 56% of millennials who want homes under $250,000 — a tough find, given that the average U.S. home value is currently $266,104.[1]

Perhaps unsurprisingly, more than two-thirds of millennials (67%) aren’t planning on putting 20% down on their home — probably because they don’t have enough savings to cover the cost. Compared to last year, millennials are 80% more likely to pay less than 5% up front.

In fact, more than half of millennials (51%) cite saving for a down payment as their biggest barrier to home ownership. The top barriers include:

  • Saving for a down payment (51%)
  • Competition among buyers (47%)
  • The sense that homes are too expensive (46%)
  • Qualifying for a mortgage (32%)
  • Having too much debt (31%)
  • Worries about the local job market (21%)

We compared millennials’ self-reported savings to their ideal price points for homes to see how many have saved enough money. Across the board, millennials’ savings fall short of their ability to pay a 20% down payment.

To compensate, millennials plan to rely on first-time home buyer assistance programs (25%) — such as the Biden administration’s proposed $15,000 tax credit or an FHA loan that could reduce the down payment to 3.5% of the purchase price.[8][9]

Student Debt Stands in the Way of Homeownership

In the past 15 years, American student debt has tripled, reaching an unprecedented $1.5 trillion in federal loans.[10]

Student debt is common among millennials; of those we surveyed, 77% are currently paying off student loans. Nearly one-third of millennials (31%) worry student debt will be an obstacle to home ownership.

Student loans can impede people's ability to afford to buy a home: Nearly half of graduates surveyed in 2019 expected to delay homeownership as a direct result of their student loans.[11] And those with debt planned to push back buying a home by 7 years.

Still, 2021 brought potential financial relief for debt-burdened millennials. On his first day in office, President Joe Biden instructed the Education Department to suspend federal student loan payments through September 30.[12] The loan forbearance period has been in place since March 2020, which means many millennials have been able to put money away for a home instead of paying toward their loans.

Individually, the average millennial owes $33,000 in student loans — and more than 80% of millennials we surveyed said Biden’s $10,000 student loan forgiveness plan would make an impact on their finances, including their home-buying plans.[10]

In fact, for 23% of millennials we surveyed, $10,000 in loan forgiveness would wipe out their remaining student loan debt entirely.

Of those who reported having student loan debt, loan forgiveness would allow millennials to:

  • Put more money down on a house (52%)
  • Save more money for an emergency fund (51%)
  • Pay for renovations and upgrades or buy a house with better amenities (36%)
  • Buy a bigger house (25%)
  • Get a bigger mortgage (23%)
  • Buy a house in a more expensive location (16%)

Without student debt, millennials would be able to save an average of nearly $300 per month that normally goes toward student loans.[13] Beyond savings, less debt would decrease millennials' debt-to-income ratio, which could help them qualify for better loans.

Dreams of Homeownership Are Marred by Financial Stress and Anxiety

For millennials who are serious about purchasing a home in 2021, the process is likely to inspire difficult emotions.

More than half of millennials (52%) — as well as 39% of boomers — report experiencing stress and anxiety during the home-buying process.

Home-buying fears among millennials center around affordability. Millennials are worried about:

  • Unexpected or hidden costs (47%)
  • A lack of affordable homes (44%)
  • The prospect of major repairs (38%)
  • The possibility that home values will decline (31%)
  • Not being able to qualify for a mortgage (29%)

Despite their anxiety, millennials are ready to jump into homeownership, even if it means putting in offers on risky fixer-uppers or buying a home they’ve never seen in person.

Compared to boomers, millennials are more likely to feel “excited” about the prospect of homeownership than boomers — and 80% still consider homeownership part of the American Dream.

Key Takeaways

Around the world, the pandemic brought sweeping changes to our daily lives — including what we value in our homes.

For millennials, a year of lockdowns and sheltering-in-place inspired new urgency around home-buying. Millennials want more space to work remotely, enjoy outdoor living, and cohabitate with their growing families. Compared to 2020, they have more savings to make homeownership a reality.

But these dreams of homeownership are accompanied by financial anxieties. Millennials are still struggling to afford down payments — and compete against other buyers.

As a result, they’re willing to gamble on riskier properties, including fixer-uppers and homes they’ve never seen in person.

Methodology

We surveyed a total of 1,000 Americans in a survey on January 15, 2021.

Each respondent answered up to 20 questions related to their financial situation and home-buying plans.

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