The jury is still out on whether millennials are starting to buy homes in greater numbers nationally, but Madison is one of the top 10 markets in the nation when it comes to millennials taking out a mortgage.
A strengthening economy with full employment, historically low interest rates, and relatively affordable housing are typically ingredients for a strong housing market, and that’s the case here. While a widely held perception is that millennials are not part of the home-buying mix — especially due to daunting student debt and the experience of seeing their parents or other relatives lose their homes to foreclosure during the Great Recession — local realtors say they are definitely starting to buy homes after putting off the decision.
Their heightened interest has further aided Greater Madison’s housing recovery, which has been in full swing for the past two years.
Playing the percentages
James Imhoff, CEO of the First Weber Group, notes that American home ownership rates have fallen from the upper 60th percentile to 60%, and it’s mostly attributable to millennials delaying their purchase of a home from their mid to late 20s to their early 30s. Millennials are the 75 million-strong generation born between 1981 and 2000 (or 1995 or 1997, depending on the source), and the oldest are now 35.
That’s not to say they are opposed to the idea of home ownership, because surveys by the National Association of Realtors and the American Bankers Association indicate that 87% to 89% of them still have the American Dream of homeownership in sight. “They have put off their family formation and they have a universal feeling that they like to be flexible,” Imhoff notes. “They don’t want to be tied down. They are happy living in an apartment until they start to get to that age where they are going to form a family.”
Thanks to an influx of millennials to Madison, largely driven by good-paying opportunities at Epic, other high-tech businesses, and the city’s attempts to create a millennial-friendly culture, Madison realtors are in an ideal position to capitalize on the beginnings of millennial family formation.
“It isn’t just Epic,” states Imhoff. “It’s probably driven 20% by Epic but then all the similar high-tech businesses that are formed in Madison are just huge. We’ve got Zendesk there now. We’ve got all kinds of things that are cropping up. The tech businesses that started 10 to 20 years ago in Madison that were new startups tied to the University and biotech and whatever, a lot of those are taking off now. Certainly Epic is a driver, but they are not all of it. There are a lot of these people out there. They get paid pretty well.”
David Stark, president of Stark Company Realtors, says there is both empirical and anecdotal evidence to suggest Madison millennials are beginning to buy homes at a good clip. First, home-buying activity in the lower price ranges, defined as anything under $300,000, is very intense in Madison and in Dane County. “A lot of that is first-time homebuyer activity, and first-time homebuyers tend to be younger,” Stark says. “We can deduce from that statistic that a lot of them happen to be millennials.”
Another interesting stat came from Realtor.com, which published a list of the top 10 U.S. cities where millennials are buying houses. Madison ranked No. 7 with 46% of area mortgages in 2015 taken out by people within the millennial age range.
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In terms of home ownership, one widely held belief is that millennials weren’t in as big a hurry as previous generations because they wanted more flexibility when they were young and single. Instead of buying a home in their mid to late 20s, they were willing to put it of until their late 20s or early 30s, especially if they were beginning to form a family.
“There is a lot of validity to that,” Stark asserts. “Obviously, the recession eight years ago set everybody back, and it was right when that generation was coming into the home-buying age and it probably delayed them. From our point of view, there is a lot of evidence that millennials are marrying late. They are making those kinds of commitments later. They prefer to be a little bit more mobile early in life, especially in terms of their jobs and where they want to live. It’s no secret that we’ve seen a lot of millennial in-migration in Dane County. Epic drives a lot of that. A lot of it is that we’re developing a very thriving tech community here.
“So the growth of the millennial population — it’s a big generation anyway — shows they are being attracted to Madison in big numbers,” Stark adds. “There are a ton of them coming into our market. They are getting older now. We’re definitely seeing late 20s, early 30s. That’s absolutely the age where we are seeing most of them come in and starting to buy. It’s a trend that we’re going to see continue to grow over the next five to seven years. We’ve just hit the tip of the iceberg.”
The implications for the multifamily boom downtown is yet unknown. Some worry that Madison has overbuilt apartments, and that day will surely come, but at the moment they still are filling up as fast as developers can build them. One result could be a spike in condominium development because some millennials might want to have it both ways — enjoy some form of ownership while still living downtown. Thus far, new condo development has been the desire of older residents wishing to downsize and simplify, but condos could become attractive to millennials, too.
“It’s no secret that we have an inventory shortage in Dane County, and we need new construction wherever we can find it [both single-family and condo units],” Starks notes. “The question is would millennials go for that? I think some would. Obviously, whether you buy a condo or a single-family house, you make a commitment that you intend to stay for a while.”
Recovery mode
Stark notes the desire for homeownership is not only a dream, it’s also a financially sound move. The average net worth of the typical homeowner is significantly higher than that of a likely renter, he states, and one way to build wealth is to have the cornerstone of an estate.
U.S. home prices set a record in September, topping the previous peak from a decade ago and capping a full recovery in housing. Stark did not dispute that, especially in Madison. By November, the median Dane County home was $245,000, higher than the $217,000 that represented the median price in 2007. The pessimists would point out that it’s hardly a cause for celebration that homes are finally worth more what they were nine years ago, but the local and national markets have at least recovered to that extent.
“We’ve passed our home price peak quite a bit before other markets did,” he notes. “Madison never really collapsed like other markets did, from a price point of view. We only went down maybe 8% to 10%, and it didn’t take us long to get back up.”
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