Why are Millennials Buying Homes in Virginia?

Article by:

KCM Crew

Even though they usually get a bad rap, these days, Millennials are working hard, filling jobs, and yes, buying homes to settle down. And one of the most popular places they are settling in might surprise you. It's not Florida, California, or Texas, but Virginia.

Millennials are described as those born between the mid-1980s and mid-1990s, and their entry into the real estate market has different from older generations.

Millennials are buying their first homes later than their Baby Boomer parents. There are several reasons why, including high student loan debt loads, and career stagnation caused by the Great Recession.

Many of these are the same folks who didn’t want to buy a home then but now account for more than half of all home-purchase loan applications and experts expect them to keep up the demand.

According to the American Community and American Housing surveys, there are 66 million Millennials in the U.S. which account for 37 percent of the total national homebuying market.

Additionally, they make up an even larger share of first-time homebuyers. For example, 82 percent of younger millennial buyers (ages 22-30) and 48 percent of older millennial buyers (31-40) purchased their first homes between July 2019 and July 2020.

First-time buyers represented 31 percent of all purchasers in the National Association of Realtors’ most recent annual survey, but the number has since decreased.

Source: bankrate.com

Why Virginia?

According to USA Today, a recent ranking considers housing cost data from Zillow, the national median income for Millennials (just under $61K), and the length of time it would take those Millennials to save a 20 percent down payment.

The winner is West Virginia.

In West Virginia, Millennials need 2.5 years to save for a 20 percent down payment – the lowest of any state in the country. Homes in the state average around $150K, and Millennial buyers can expect a monthly mortgage payment of around $693.

Other advantages from the report cited, “West Virginia's rising home values ... "After stagnating at around $90,000 for years, since 2014 the median home value has been on a consistent increase, first exceeding $100,000 in September 2016.”

Source: themortgagereports.com

In 2019, LendingTree did a study and produced data on mortgage requests and offers for borrowers aged 23 to 38 across the 50 largest US metro areas, as well as requests from the total population of mortgage seekers.

It then ranked the cities based on the percentage of total home buying requests LendingTree got from Millennial borrowers. This indicates millennials who inquired about a mortgage loan; not all these Millennials purchased a home, according to LendingTree.

Of the top 10 most popular cities, most are in the North and Midwest, with one in the South and a few out west.

Source: businessinsider.com

Why Now

Typically, low-interest rates, higher family savings, and new work-from-home opportunities driven by pandemic-related restrictions have combined to stimulate housing demand that raising the median price of existing single-family homes by 39% from 2018 to 2021.

This impacted all ages of homebuyers especially Millennials, who are now in their prime homebuying years.

The total number of U.S. mortgage originations each year has fallen from just over a trillion dollars per quarter in 2003 to a steady average of $430 billion between 2008 and 2019. However, after a spike at the end of 2019, mortgage originations have again peaked at well over a trillion dollars per quarter at the end of 2020 and into 2021, reflecting a surge in home sales amid the COVID-19 pandemic, according to the report.

The increased interest in homeownership has been strong for millennials, even though they have had much financial pressure. For example, most Millennials had no existing home equity to apply to their mortgage loans, as most buyers under 40 were first-time homebuyers.

Additionally, even though Millennial mortgage applicants have experienced strong income growth in recent years, these salary increases often came from high-tech jobs located in larger metro areas with higher home prices, according to CoreLogic.

One survey found that most Millennial homebuyers ended up buying homes that needed more renovations than expected, and over a third exceeded their anticipated budget.

Millennial homebuyers often take out smaller loans, and usually with higher loan-to-value ratios, based on data from the report. In 2020, the average home loan value for applicants between 25- and 34 years old, an age range of most millennials, was $255,000. This compares to an average home loan value of $275,000 for 45- to 54-year-old applicants, which represents most Gen Xers.

Further, most Millennials tend to apply for home loans with a higher median loan-to-value ratio (90%) than most Gen Xers (80%), according to Home Mortgage Disclosure Act, as mentioned in the LendingTree report.

The data used in the analysis was supplied by Federal Financial Institutions Examination Council. To determine the locations with the most Millennial homebuyers, researchers at Construction Coverage calculated the Millennial share of home purchase loans originated in 2020. Due to data availability limitations, the 25- to 34-year-old age group was used to approximate the Millennial generation. In a tie, the location with the greater total Millennial home purchase loans was ranked higher. The Home Mortgage Disclosure Act was cited again for this information.

Millennial Homebuyers

With home prices still rising and mortgage rates too, today's housing market for anyone can be challenging, and even more, for Millennials, it has been said because many lack experience in the housing market.

However, here are some tips to aid in the home buying process for Millennials (and any potential buyer):

Work on credit scores as a solid credit history and higher credit score lets lenders know how you manage debt. As a result, the better the credit score, the more likely it will be to find a lender willing to work with you and offer a low rate. You can improve credit scores by making on-time payments and keeping your spending in check.

Pay down monthly debts since lenders look at the debt-to-income (DTI) ratio — the percentage of your gross monthly income that goes toward recurring debts. Maximum DTI ratios vary by the loan program, so it's important to keep the total DTI ratio (which includes your monthly mortgage and all debt payments) at 36% or less.

Know your loan options. It can be a challenge to build credit or produce a down payment. However, specific first-time homebuyer programs are available to make homeownership more affordable.

Source: lendingtree.com

In the end, if you are a Millennial and you are ready to buy a home, Virginia might be the place you want to explore. From a great landscape to tons of things to do and see, a good economy, a steady job market, and outdoor activities, it could be the next place you call home-sweet-home. Make sure you connect with a professional and qualified realtor who knows the Virginia housing market well and can help you find what you need.