Housing market: Millennials bypass starter homes for dream homes

Yahoo Finance's Vera Gibbons joins the Live show to discuss the real estate market amid the unexpected house hunting competition among younger buyers.

Video Transcript

AKIKO FUJITA: Well, record low inventory has sparked bidding wars for homes in some of the country's hottest housing markets. If you're looking for a dream home now, turnkey property, getting inside one could prove to be even more elusive. Let's bring in Yahoo Finance's contributor Vera Gibbons. Vera, talk to me about this because I think the definition of a dream home could be different depending on the person, but you're talking specifically about this millennial group, younger buyers who are now going in saying, it's my first home, but I don't want a starter home.

VERA GIBBONS: That's exactly what's happening. So people who have been living in starter homes, they've maybe been there three, five, seven years, they've built up equity over the years, and they are now hypothetically looking to buy a larger home and take some of those profits off the table, maybe find something more permanent.

They're entering the market and saying, wait a minute. What's all this competition? This is millennials I'm competing with now? So millennials are bypassing the traditional starter home, which is generally a fixer upper and needs a lot of work, new electrical, new plumbing, the whole nine yards.

And they're saying, you know what? No, I want the turnkey property. I want something shiny and new. So the people who have already been in these starter homes and are looking to get out are saying, where did this competition come from? And who are these people? It's millennials, which now account for about 37% of homebuyers nationally.

JARED BLIKRE: Yeah, and I think that word, "turnkey," really applies to the millennial generation when I think about all the new products and services that have arisen over the last 10 years. I'm just wondering, what kinds of other things are they looking for when it's coming to buying a new home?

VERA GIBBONS: Well, they want space. Obviously, our lifestyles have changed over the course of the pandemic or because of the pandemic. We're all working from home, so they want a lot of space. The traditional starter home you think of maybe being 1,000 square feet or 1,500 square feet. Some of these millennials are going for 2,500 square feet, 3,000 square feet. I spoke to one couple that's engaged to be married.

And they've arranged it so the woman works on the ground floor, he's got the entire second floor to himself. They have plenty of space. So they are both working from home. They also have a dog, so they've got lots of outdoor space. The dog likes to run around and play. So they have pretty much what they want for their current lifestyle needs.

And then they're thinking ahead toward their future needs. At some point, they might want children. So they went ahead and bought, like, a three or four-bedroom townhouse, unlike traditional couples who might be, decades ago, would be like, oh, let's take, like, a little one-bedroom, maybe 1,000 square feet. They're just thinking-- the millennials now are thinking, what do I need now, and what might I need down the line?

And they can actually afford to do this because of a combination of a couple of different things-- low down payments, low interest rates, and buckets of money. Keep in mind that a lot of the millennials, young adults, they moved in with their parents during the pandemic. They weren't paying rent, they weren't making student loan payments. Many of these millennials are still living with their parents as they house hunt.

So they have buckets of cash, which allows them greater flexibility to buy those more expensive properties. And their changes have completely changed. They don't want to roll up their sleeves and get new electrical, new plumbing, make all these crazy repairs. They like shiny and new, and they like a lot of space.

AKIKO FUJITA: I wonder how much of this also, Vera, has to do with those who are getting into homes later. So yes, we're talking about millennials, a younger demographic for home buying, but I'd imagine some of those couples that you spoke to, well, they've had the experience of renting for quite some time. They've had time to think about this. In addition to that, they've really had to think about it during the pandemic.

VERA GIBBONS: Yes, that's another factor that's playing into this as well. Also keep in mind that there's not a whole lot of inventory out there. I mean, a lot of the original starter homes have been converted to rental properties, and the millennials don't want to pay any more rent now because the rents are becoming ridiculous. So that's definitely a factor, too. It's a lifestyle thing. It's a demographic thing. And it is a pandemic-related change.

So where we all go from here, nobody really knows. I spoke to one housing expert who says, well, once inventory comes back online, maybe we'll go back to our more traditional home buying experience. But he also said in the next breath, look, I've been watching the industry for 25 years, and I've never seen this type of activity. So like a lot of facets of our life, we're in uncharted territory.

AKIKO FUJITA: All right, Vera Gibbons, always good to get your take, especially on the housing market. We've got much more to come--