From Home Furnishing Business
Millennials Now Largest Home Buyers
The Millennials are the most researched generation in history as marketers try to predict how they will spend its estimated $200 up to $600 billion dollars annually starting next year. Also known as Generation Y, these young adults, ages approximately 17 to 34, represent the largest generational cohort in history with numbers now exceeding 83 million.
Numerous articles and studies imply this generation intends to spend more of its money on experiences and less on things. However, other studies are showing these 17 to 34 year olds actually want many of the same things as previous generations – to settle down, buy a home, and have a family. And while that may be true, those American dreams have been hard to come by. Though home ownership rates are still falling for Millennials, for the last three years these young adults have become the largest age segment of home buyers, according to the National Association of Realtors.
This is the second of two articles profiling Millennials. Last month’s article explored demographically how the Millennials have altered the population, income, education, and household characteristics of young adults. This article delves into Millennial home buying trends, shopping attitudes and habits and whether they lend themselves to home furnishings purchases in the future.
While Figure 1 shows how the sheer size and education of this generation will lend itself to consumers pouring into prime furniture buying years, Figure 2 depicts the negative results of the Great Recession and a delay in marriage and homeownership among Millennials.
Millennials are therefore arriving late to the home buying industry and in turn the home furnishings industry. But studies show many Millennials actually would prefer to own rather than rent, but opportunity and financial barriers are hindering them. These first-time home buyers have been sitting out the housing recovery largely because of financial reasons. The Great Recession ushered in a poor job market to go with the average Millennials increasing college debt.
According to The Institute for College Access and Success (TICAS) Project on Student Debt (Table A), the graduates with debt grew from 65 percent in 2004 to 69 percent in 2014 to an average of $28,000. In fact, the Census Bureau reports that one in five young adults is living in poverty, up from one in seven in 1980.
Along with staggering college debt, young adults are faced with a slow to increase median income (Table B). Millennials ages 25 to 34 earn $31,219 annually, down over 10 percent from a peak of $34,459 in 2007. According to a recently released survey by the National Association of Realtors (NAR) of over 6,000 home buyers July 2014 to June 2015, Millennials purchasing homes have a median household income of $77,400 and take a median of four years to save for a down payment.
First-time home buyers fell to just 30 percent of units sold in February. Historically it should be at least 40 percent. Even with Millennials waiting longer to buy homes, they still account for the majority of home purchases and this number should grow as more of the generation ages into their 30’s. For three years Millennials have comprised the largest group of recent home buyers, 35 percent in 2015 compared to 32 percent in 2014, more than the previous smaller Generation X (26 percent), Baby Boomers (31 percent), and the oldest Silent Generation (9 percent) (Table C, NAR Survey).
While many Millennials sought the urban lifestyle for renting, most appear to be leaving the city for the suburbs when it comes to buying a home. In 2015, only 17 percent of Millennial home buyers purchased inside an urban or central city area compared to 21 percent a year ago (Table D). The higher costs of in-town properties in many urban areas are driving them to the suburbs where they are looking for more affordable and larger homes.
As the economy improves and Millennials grow their bank accounts, settle down, and become homeowners, how else will they spend their money? What influences and guides their purchases? How does this generation shop? Forbes magazine conducted a study on the consumer characteristics of Millennials in 2015 and surveyed 1,300 young adults. Table E shows that a majority of Millennials are loyal to brands (60 percent) and want them to engage with them on social networks (62 percent). Seventy-five percent hate corporate greed and find it very important to give back to society, especially through local communities. Compared to fewer than three percent relying on TV news, magazines, or books, 33 percent of Millennials look to blogs for recommendations and design ideas.
Just because Millennials are a digital generation does not mean they want to completely abandon traditional ways of shopping. Instead, they expect to have a streamlined experience between physical stores and the internet. According to a study conducted by Accenture on the shopping behaviors of Millennials (Table F), 68 percent of young adults demand an effortless transition from smartphone to personal computer to physical store when searching for the best products. Forty-one percent said they practice “showrooming” by checking out a product at a nearby retail store and then shop for it online to find the lowest price. Millennials love loyalty programs and 95 percent said they want brands to reach out to them by sending coupons via text, email or mailed to their homes.
The home furnishings industry will need to pay attention to young adult’s marketing expectations and shopping behaviors as the glut of the generation pours into their prime furniture buying years over the next five years. The hope is that Millennials will make a growing impact on the furniture industry, already estimated to be around $21 billion in 2015, according to industry consulting firm Impact Consulting Services.