The post-recession years have seen significant debate about the next generation of home buyers — the millennial generation — and whether or not they are interested in owning homes. However, it has become clear with recent research that millennials do want to be homeowners and understand the value of home investment. According to the most recent ValueInsured Housing Confidence Index, more than 76 percent of millennials reported that they would like to purchase a home — a reason why many are utilizing online real estate platforms to research homeownership opportunities in today’s competitive market.
High volumes of web traffic through online real estate platforms suggests that demand certainly exists among this generation. This begs the questions of why millennials aren’t buying houses in today’s market, and what can be done to change it.
The reason won’t come as a surprise to anyone. Affordability is a major issue in many U.S. cities. The lack of new supply coming onto the market has made purchasing a home more expensive. Furthermore, stricter credit score and down payment requirements have limited access to financing in many cases. Adding to these dynamics, millennials’ obstacles have been well-documented: student debt makes obtaining a mortgage more difficult, and paying a mortgage is compounded by chronic underemployment or irregular cash flow with the rise of the freelance economy.
The issues are familiar at this point. The solutions are where we need to shift the discussion. Looking at the longer term, builders — perhaps with some incentive from local governments — can increase the number of affordable starter homes being constructed to raise the housing supply. More immediately, however, is another solution: more millennials are buying auction properties, which presents opportunities to buy homes at competitive prices. The 2016 National Association of REALTORS® Home Buyer and Seller Generational Trends found that buyers 35 and younger were the generation most likely to consider purchasing a home that was in foreclosure. Many sellers of foreclosed properties select auction as a preferred disposition strategy and market to the public through online platforms..
Auction markets for residential real estate have existed for many years, but grew significantly during the financial crisis. To manage the inflow of bank-owned properties after 2008, technology development accelerated to automate auctions, including bid and offer management and paperless contracts, to make the processes more efficient, simpler and customer-friendly for buyers and sellers. For millennials who grew up in the digital age, making purchases online is more natural than for other generations. To make self-directed buying easier, the online auction industry is continuously evolving — improving user interfaces, increasing the amount of asset-level data available without cost and increasing transparency in the bidding process.
Changes in the market are breaking down barriers for auction properties for first-time home buyers. For example, in recent years, auction properties were typically cash purchases with no contingencies permitted. Today, most auction sales permit both financing, including FHA 203(k) renovation loans, and inspection contingencies, which decrease risks for first-time buyers. These advancements open up new opportunities for novice homebuyers and investors working to get on the property ladder.