Hot Spots Millennials are Buying Homes (It's Not Where You Would Think)

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To borrow a quote from Mark Twain, the reports of millennial homeownership’s death have been greatly exaggerated

However, millennial home purchasing has undoubtedly followed different patterns than previous generations. High housing costs, student debt, choosing to marry and have children at later ages, location preferences in expensive cities, lifestyle preferences, and memories of the 2008 housing crash have all shaped millennial homebuying patterns. A recently released study from the Urban Institute found that in 2015, homeownership for Americans aged 25 to 34 was 37%, which is 8% lower than rates among Gen Xers and baby boomers at the same age.

Yet, as the economy continues to pull out of the 2008 housing crisis, millennials have ramped-up their homebuying. A recent report from the National Association of Realtors found that millennials have bought more houses than any other generation for the past five years. Trulia research concluded that millennial buyers are, in fact, the driving force behind rising homeownership rates.

Millennial homeownership is an economic reality--it’s just not always happening in the locations society tends to associate with the term “millennial.” Millennials may not be able to afford the trendiest cities, but they can and are purchasing homes in some unexpected places.

Outside of The Big Cities

Millennials have gravitated to large cities that function as cultural and economic hubs such as New York, Los Angeles, and Chicago--but that doesn’t mean they’re buying homes there. The Urban Institute argues that millennials’ preferences for larger cities are part of the reason why millennial homeownership rates have (in some respects) lagged behind other generations’. While renting in these cities is possible, purchasing property is often out-of-reach even for well-educated and well-paid millennials.

Where are they turning instead? Many small and medium-sized cities are hitting a sweet spot for millennial homeownership. These cities boast urban amenities, close-knit communities, and perhaps most significantly, affordability. Curbed reports that mid- or second-tier cities saw their millennial populations grow over 10% between 2010 and 2015.

Away From the “Cool” Coastal States

In CNBC’s recent list of the ten least affordable states to live in, almost all of the states shared one crucial attribute--a share of the U.S. coastline. Their list of affordable states for millennial homeownership, meanwhile, covers virtually all states in the Midwest. An analysis from the Brookings Institute concluded that metro areas where advanced industry bases take up a substantial portion of the workforce “have helped pull the country’s economic gravity westward.”

Although not all of these cities are what you’d call affordable, the Institute’s findings do reflect that millennials are increasingly turning to non-coastal areas to find jobs and an affordable cost of living. Though many coastal or traditionally expensive states do features areas that are affordable for homeownership (not all of New York is priced the same as Manhattan), there’s a definite preponderance of Midwestern states in rundowns of millennial homeownership. A study from real estate site ADOBO concluded that millennials make up a significant portion of home sales in the Midwest and Southwest.

Diverse Tech Scenes

There’s plenty of tech activity in hubs like Silicon Valley and New York--but even relatively well-paid millennial tech employees can’t afford to buy homes in these cities. Yet, there’s far more to the American tech scene than these metropolises. The growing importance of remote workers and freelance contractors means that many tech workers don’t have to pay Silicon Valley rents to hold quality tech jobs, moving instead to affordable cities. Many of those affordable cities feature thriving tech scenes. Tech companies struggling to attract new employees to astronomically expensive cities such as San Francisco are opening offices in more affordable cities--sometimes cities where millennials can even afford homeownership.

As prices in major cities continue to rise, many innovative tech startup scenes are springing up in smaller, more affordable cities where founders can still afford to bootstrap infant companies. Madison, Wisconsin; St. Louis, Missouri; and cities such as Provo in Utah’s “Silicon Slopes” feature both millennial homeowners and plenty of tech startups and workers.

Seeking Affordable Tools

Technological innovation is helping millennials afford homes even in areas that might have proven inaccessible to someone with a similar financial profile a few years earlier. Professor Richard K. Green (head of the University of Southern California’s Lusk Center for Real Estate) believes that fintech has played a pivotal role in increasing millennial homeownership, pointing to data analytics tools that help banks extend mortgages to buyers previously considered unqualified. New technology is popping up across many housing markets that make homeownership more affordable. Fintech startup EarnUp’s recent partnership with Framework Homeownership uses consumer-facing tech tools to help new homeowners manage their finances, while startup Deedcoin has used blockchain tokens to develop a network of low-cost, high-quality real estate agents who can help home buyers and sellers save significantly on agent commissions.

Patterns of homeownership will continue to change as they always have, but there’s plenty of evidence that the demise of millennial homeownership has been vastly overstated. In thriving cities and towns across the U.S., millennials are building financial stability and buying homes.