TD Bank's First-Time Homebuyer Pulse

couple in process of moving, girl in a box

January 24, 2020 - Consumer Insights United States

Survey Uncovers the Factors Motivating First-Time Millennial Homebuyers in 2020

Introduction

While the majority of millennial first-time homebuyers entering the market this year believe it's a good time to buy, many report feeling overwhelmed by the process and most have not taken the first financial steps toward homeownership.

TD Bank surveyed more than 850 millennials (age 23-38) who are planning to buy their first home in 2020 to uncover their feelings around the purchase process, influences on their home buying plans, and how their perceptions and behaviors are shaped by what they’ve observed in the housing market of the past and present.

These first-time buyers are entering the market for a home for a variety of reasons. Ninety-one percent said they believe buying a home is a good long-term financial investment, while 69% said feel obligated to buy a home given the current stage of their life. Many also believe the market is prime for purchase – 68% said it's currently a good time to buy.

But despite their intent to buy in the next 12 months, 75% of buyers admitted they are overwhelmed by the process.

A Shaky Financial Foundation

The proliferation of home listing websites has made it easier than ever for buyers to browse properties from their couches – and they are. Fifty-two percent say they are already actively searching home listings online, while 26% have engaged a real estate agent.

Yet many buyers intending to purchase in the next 12 months have not yet started to build the financial foundation for homeownership. Just 52% say they have started saving for a down payment and only 53% have reviewed their credit report. A mere third (30%) of respondents have met with a mortgage lender – a step which enables buyers to determine what size mortgage loan they will qualify for and establish a realistic budget for their search.

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Priced Out of their Preferred Markets

Despite a desire to buy, millennial buyers won't settle – 84% said they would delay buying a home if they don't find the ideal place. And their perceptions of value are shaped by their current living situations and ongoing affordability challenges.

With a majority of respondents landing in the yearly household income range of $50,000 to $100,000, 22% of millennials said steep home prices in the neighborhood where they want to live have prevented them from purchasing a home to date. A third of those (36%) said they felt those homes were overpriced.

This may be because 43% of those surveyed said they want to reside in a big city or metro area, many of which have experienced inventory shortages that have driven home prices up. Another 32% say they would prefer to live in a suburban area outside of a city.

A majority (70%) admit that their expectations for their first home are higher because of the amenities they have where they currently live. Taking this a step further, another 17% say they have yet to buy a home because they enjoy renting in their current neighborhood, yet can’t afford to buy there.

When asked what type of home they want to buy, millennials also shunned the usually more affordable fixer upper, with just 22% saying a home that needed significant renovations was what they wanted. In comparison, 71% showed interest in a move-in ready house and 48% said they wanted a new build house or condo.

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Of course, student loan debt remains a major barrier to homebuyers today. TD's Student Debt in the USA Survey found that 41% of Americans who graduated in the last 20 years said they have delayed purchasing a home because of their student loan debt.

Family Remains First Priority

Despite the desire to live in or near a big city, respondents made it clear that taking care of their children and being close to family are among the most important intangible factors when purchasing a home.

Tasked with ranking their top three priorities, survey respondents placed good schools and child care at the top with 39% of the vote, with being close to family coming in at third place at 36%.

This makes sense, as most buyers surveyed are looking to purchase a home as a family unit. Sixty-four percent said they planned to purchase their first home with a spouse or significant other, and more than half of buyers (52%) said they are currently living in a rental property with a significant other and/or children.

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Lingering Effects of 2008 Housing Crisis

Sixty-five percent of TD's survey respondents were age 21 or younger in 2008, indicating they likely experienced the U.S. housing crisis at an impressionable age. As such, many millennials buyers are understandably wary.

Of the 67% of respondents who were familiar with the housing crisis, about one in five (21%) said their family lost their own home during the crisis, and another 38% said they knew someone who did. Nearly half (47%) said growing up during the crisis has made them more nervous to purchase a home. Furthermore, 70% of this group said they believe the housing market is fragile.

Surprisingly, a third (35%) of millennials believe the government will protect them and their home during bad economic times.

Parental Support is Strong

Millennial homebuyers are relying on their parents for advice, financial support and a roof over their head until they secure a home of their own. About one in five (19%) millennial buyers report they are currently living in their parent or guardian's home.

More than a third (37%) of buyers said they regularly ask their parents for advice about homebuying, and nearly half (49%) said their parents are chipping in financially. The most common way parents are contributing is to their child's down payment (33%), followed by closing costs (20%), monthly mortgage payments (17%) or by co-signing the loan (9%).

Notably, 85% of buyers who said their family lost their home during the 2008 housing crisis said they will receive financial help from their parents.

Moving in on a Mortgage

While parents play an important role in providing homebuying guidance, buyers are turning to the experts when it comes to securing their mortgage loan. Survey respondents ranked their mortgage lender as the most credible source for advice on the mortgage process. What's more, 52% of buyers said they'd prefer to start their mortgage application in-person with a lender, followed by online (34%).

When asked about their priorities for their mortgage, respondents were split. Having the lowest possible monthly payment was most important to the most respondents (27%). Given that many homebuyers will receive financial support from family, it should perhaps come as no surprise that having the lowest down payment wasn't a top priority.

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Of Stress and Stability

The survey produced an eye-opening look into the psyche of the millennial buyer, especially the stressors that come with purchasing their first home.

The top personal factor keeping buyers up at night is the stability of their job at 51%, while another 35% worry about the strength of their relationship with their significant other. As homebuyers looked toward global and national trends, the state of the current and future economy was a top concern for 57% of buyers, while almost half (47%) cited potential change in policies due to the 2020 election as a cause for worry when buying their first home.

But even with these very real concerns, the majority of buyers (83%) still believe homeowning is the American dream, with many buyers associating homeownership with wealth (61%) and safety (68%).

TD Bank's First-Time Homebuyer Pulse Survey Methodology

An online questionnaire of 10-15 minutes in length was administered to millennials (ages 23-38) who are looking to buy their first home in 2020. A random sample of 862 respondents considering to buy a house in 2020 would have a margin of error of +/-3% nineteen times out of twenty. These samples are targeted convenience samples. The data was weighted by gender and region.

TD Bank's Student Debt Impact Survey Methodology

The study was conducted by research company Maru/Matchbox. Respondents were composed of a nationally representative sample of 1001 American panelists, aged 18 to 39 who pursued tertiary education. A random sample of this size would have a margin of error of +/- 3.1 percent. The survey was fielded from June 17th and 27th, 2019.


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