The real estate community has been waiting anxiously for Gen Y to grow up and join the ranks of homeowners. Right now many of these young people are focused on Little League or SATs — members of Gen Y range from 8 to 25 years old — but others have mortgage rates on their minds.
Born roughly between the years 1977 and 1994 (demographers differ on specifics), Gen Y is about as large a demographic group as the 78 million Baby Boomers born between 1946 and 1964. With this big a pond to fish in, developers, real estate agents and mortgage brokers are impatient to see what kind of bait Gen Y will nibble at.
Though it’s still early to draw too many conclusions, initial indicators are rosy for the industry.
“We’re seeing an important new trend: Gen Y is buying homes more rapidly than previous generations,” says Cheryl Russell, editorial director of New Strategist Publications, a publisher of demographic references books in Ithaca, N.Y.
Consider: In 2001, 22.5 percent of heads of households who were under age 25 owned their homes, according to U.S. Census Bureau figures. That compares to 19.3 percent in 1982, the first year that government figures are available. It then dipped to the mid-teens in the late ’80s and early ’90s as Gen X (born 1965 to 1976) entered the home-buying scene.
What’s more, Gen Y’s penchant to buy property has been consistently strong across the country. The highest homeowner rates are found in the Midwest, where 24.6 percent of Gen Y heads of households owned their homes in 2001, up from 14.7 percent in 1993.
Experts chalk up these increases partly to low interest rates, but also to higher incomes for young people. From 1990 to 2001, the median income of households headed by people under age 25 rose 19 percent — after being adjusted for inflation. “That’s the fastest income growth experienced by any other age group in the ’90s,” Russell observes.
Aside from economic factors, something in the psychology of Gen Y apparently favors home ownership. Gen Y is very goal-oriented, says Claire Raines, a Denver-based generational consultant and co-author of “Generations at Work” (Amacom, 2000). “Even if they’re not buying now, they probably know when and what they want to buy,” she says.
Experts often compare Gen Y to the World War II generation because they seem to be more idealistic and civic-minded than Boomers or Gen X. “I think home buying fits into Gen Y’s idea of what the American dream is all about,” says Raines. “They see buying a home and making mortgage payments almost as a matter of loyalty and patriotism.” In contrast, Gen X has approached real estate more as a vehicle for short-term gains than long-term investment, she says.
Gen Y also possesses considerable financial savvy, says Susan Mitchell, a demographic analyst in Jackson, Miss., and author of “American Generations” (New Strategist, 2000). The explosion of the Internet and cable television has exposed Gen Y to a wealth of financial information, and many have been entrusted with credit cards at an early age.
“Gen Y has primarily lived through an economic boom but has now experienced a bust,” adds Mitchell. “They’ve learned from the Boomers’ successes and mistakes and view homeownership as a good investment, a way to build equity and wealth.”
Indeed, financial accountability is one of the top reasons Gen Yers cite for investing in a home. “When you rent, you feel like you’re throwing money away,” says 24-year-old Alison Moore of Colorado Springs.
But there’s also another hot button: customization.
“I’d like more control over my environment. When you rent, what you see is what you get. There’s no real way to modify it,” says Joshua Peterson, a 25-year-old in Chicago who has been researching condos.
An artist, Peterson would like to have an extra bedroom or area that he could turn into an appropriate studio — “somewhere I didn’t have to worry about paint getting on the floor,” he explains.
Some consumer behavior is driven by life stage or circumstance, but each generation has certain attitudes and emotional cues that influence their buying decisions.
For example, Gen Y has been raised in ethnic and cultural diversity, so they’re more comfortable with diversity than other generations and will probably seek it out in the neighborhoods they buy in, experts say. Another hallmark: Gen Y has a high comfort with technology that will affect how they search for a home, what they buy — even how they arrange their space.
Rebecca Douglas, a 20-year-old student at Georgia Tech in Atlanta, says that, unlike her parents, she won’t sequester her computer in a separate bedroom or office. “I got my first computer at age 7, and computers have always been part of life,” Douglas explains. “I want mine out in my main living space because I use it a lot. I want to be able to check my e-mail while I’m watching TV.”
`Flexibility on the fly’
Gen Y likes space with multiple uses, observes Cam Marston of Marston Communications, a generational consulting firm in Charlotte, N.C. “They have a more utilitarian approach to things. They want flexibility on the fly.”
Primarily the children of Boomers, Gen Y has grown up in large houses with plenty of creature comforts, and experts predict that they’ll want more of the same.
Yet even though the younger generation may have an appetite for material things, they’re not willing to overextend themselves to buy them. Pragmatic Gen Yers are willing to compromise and make concessions.
“They’ve experienced a lot of change growing up and that’s made them very adaptable,” says Terry Watson of GM King Realty in Chicago. “Their flexibility makes them especially easy to work with in negotiations — unlike older buyers who can be rigid and have an it’s-my-way-or-the-highway mindset.”
Convenience and practicality play a major role in many of Gen Y’s housing decisions. They grew up with hectic schedules and are concerned about making their environments work for, not against, them.
This fall, Erin and Michael Leahy put down a deposit on a new townhouse in downtown Chicago. The Leahys were willing to forgo a yard to get a two-car garage and more interior space.
“I don’t want to have to drive around for hours looking for parking,” explains 25-year-old Erin, who uses her car frequently for work. “Besides, I’m not into gardening.”
On the interior, Erin prefers larger living spaces and is willing to sacrifice space in bedrooms. “One thing I didn’t like about many of the new developments we looked at was that the kitchens weren’t very big and they didn’t have much dining-room space,” she says.
Although Boomers were attracted to home renovation, time-pressed Gen Yers gravitate to turnkey situations.
The key is turnkey
Alison Moore initially thought she would buy an older house with vintage charm. But once she and her husband, Harley, started shopping the Colorado Springs market, their priorities shifted. The couple realized that an older home in their price range would require too much time and money to get into shape.
The Moores found they could get the same amount of square footage in a new home, although it meant a smaller yard. “I originally thought we’d be more into home repair,” Alison says. ” . . . But as far as major renovations, forget it. We don’t have time. We both work, and on the weekends, you want to have a little fun. You don’t want to be a slave to your house.”
Similarly, Lance and Allison Hoskins of Maple Grove, Minn., starting shopping for houses.
“But it seemed like more than we could handle — not just financially, but also time-wise,” says 23-year-old Lance, noting that most of the houses in their price range had been built in the 1950s and needed a lot of work.
“I like home repair, but I’ve already discovered that it’s not as easy as it seemed when you watched your dad do it,” he said.
By switching to townhouses, the Hoskinses found they could get the same amount of square footage, along with newer construction and more amenities, which included hardwood floors, a fireplace, 9-foot ceilings and bigger bathrooms.
“We didn’t consider condos because it seemed too much like apartment living,” Lance adds.
Family ties
Although it’s natural for young people to rebel against their elders, Gen Y has a closer relationship with parents than previous generations did. They’re more likely to care about what parents think and actively involve them in the home-buying process.
When Valerie Alston started shopping for a home, she enlisted her parents’ aid. “They had offered to help me financially, but that wasn’t the only reason I wanted them involved,” says Alston, 25, of in Greensboro, N.C. “They have a lot more experience at this than I do.”
At first Alston looked at small bungalows in iffy neighborhoods. “I was going strictly for price,” she explains. “But then my dad encouraged me to rethink what I was looking for, to make sure that I was in a good location for resale. He also pointed out that if I bought a house with a big yard, I’d have more maintenance to worry about.”
Alston changed her search parameters to focus on town homes and bought a two-bedroom, two-bath unit last spring. “It may not have been as exciting as a single-family house,” she says, “but I didn’t want to spend the time and energy taking care of a yard. And I have a patio, so there’s still somewhere I can go sit outside with a cup of coffee, which was important to me.”
Traditional values
Experts describe Gen Y as a generation attracted to traditional values, family and community.
Indeed, security and a “sense of place” were top home-buying priorities for the Hoskinses. “We’d like to start a family in a couple of years,” says 22-year-old Allison, who wants the same sense of security for her children that she had growing up. “If I have to worry about our children playing outside, forget it.” Proximity to good schools was also important, she adds: “We didn’t want to face moving in five years to be near better schools.”
During their home search, whenever the Hoskinses found properties they liked, they returned later to walk through the neighborhood. If they saw people out walking dogs and children playing in yards, it was a thumbs up. If people waved at them, it was another plus.
“I want a sense of connectedness with my neighbors,” Allison explains. “If their mail ends up in my mailbox, I don’t want to feel weird about taking it over to them.”
