By Jack Stubbs
“Given the chance, a lot of Millennials would want to become homeowners and have that dream, but they’re either just not there yet, or they’re having a hard time doing it…a lot of them will buy homes and stay in Seattle, but not immediately,” said Svenja Gudell, chief economist at Zillow, encapsulating one of the key trends currently defining the Seattle housing and rental market.
At its annual gala dinner, University of Washington’s Runstad School of Real Estate hosted Zillow Group’s Chief Operating Officer Amy Bohutinsky, who in her presentation reviewed key findings from her company’s 2017 Consumer Housing Trends Report. Zillow Group compiled the report with a view to gaining a comprehensive understanding of the behaviors, motivations, pain points and successes of residential real estate buying trends nationwide. The company partnered with independent market research firm Lieberman Research Worldwide to conduct a nationally representative, online survey which was conducted between May 17 and June 5, 2017.
The survey gathered information from a total of 13,125 household decision-makers who self-identified as one of the following five consumer groups: buyers (2,695), sellers (2,920), homeowners (3,040), renters (3,047) and long-term renters (1,153). In addition to surveying a wide array of respondents, the survey was aimed at gathering information about home and community characteristics, behaviors and attitudes surrounding the process of finding, living in and moving to and from a home, and the role of professionals (such as agents, property managers, landlords and mortgage providers) in the housing market.
We spoke with Gudell about some of the surprising statistics and trends found in the study—and what these trends mean for Seattle-area renters and homebuyers—as well as several commonly-held myths about the housing market that Zillow Group was trying to explore. One of these was aimed at disproving that the housing market nation-wide is prohibitive for first-time home buyers, a general misconception at the moment, according to Gudell. “It’s certainly not an easy market, it’s a sellers market in most major markets across the U.S….buyers are having a tough time,” she said. “However having said that, 42 percent of buyers are first-time home buyers, and a large chunk of them are Millennials.”
And while a large proportion of buyers are first-time buyers, rapid rental growth in Seattle means that purchasing—rather than renting—a home can make more financial sense, according to Gudell. “Even though [rents] are not drastically increasing in most of the U.S., Seattle is a bit of an anomaly, we’re seeing very rapid rental growth here. So, oftentimes it makes more sense to actually buy than it does to rent,” Gudell said.
The report found that renters’ decisions to relocate is often precipitated by an increase in rent: 79 percent of renters who moved from a previous rental experienced a rent increase before moving, with 57 percent indicating that their decision to move was directly influenced by that increase. Only 21 percent experienced no rent increase in their previous home before moving.
One of the biggest challenges faced by people looking to buy a home is the down payment. In comparison with older generations, Millennials (those aged between 20 and 36) have a more difficult time accumulating enough resources for the 20 percent down payment, since they often have to come up with the capital from scratch, according to Gudell. However, in a city like Seattle, certain employers offer financial benefits that enable prospective buyers to come up with the funds. “In a place like Seattle, a lot of the competition is coming from someone who’s working at Amazon or another company [where] they can use their signing bonus to put towards down payment,” Gudell said.
And although that obstacle may be high in a town like Seattle, the study also found that nationally Millennials also make up for nearly one-third (32 percent) of sellers.
Another myth that the report investigated—and challenged—was the notion that Millennials do not have any appetite for buying homes. “We frequently talk about how Millennials love the rental approach…Millennials do rent for longer, [but] they still want to own a home,” Gudell said, with more than 70 percent of Millennials believing that owning a home is necessary to living the ‘American Dream’ and increasing their social status.
And although the perception is that Millennials categorically prefer renting over buying, this is not the case, particularly in Seattle where rents are continually on the rise, according to Gudell. “Many Millennials think that buying a home gives them more flexibility than renting, especially in a place like Seattle…there have been significant rent increases every year to renew leases,” she said.
On the larger national scale, also, there is a long-term preference towards buying a home. “For an overwhelming majority of Millennials, [many believe that] buying a home is the best financial investment they could possibly be making,” Gudell added. This preference of Millennials is in part influenced by the choices of the previous generations, according to Gudell. “Most of them have seen their parents go through the big ‘boom and bust’…they have a desire to become homeowners themselves,” she added.
The study found that 39 percent of Baby Boomers and 25 percent of Silent Generation homeowners still live in the first home they bought. According to the study, there are likely several million homes that will hit the market over the next two decades, for the first time since the 1950s, potentially allowing for a pool of more affordable entry-level homes.
Although there is an overarching movement towards buying rather than renting, the Millennial population moving to Seattle is younger than those in the past, a demographic factor contributing to the delay before buying. “We’re certainly tracking a relatively young, highly-educated workforce coming into Seattle. The median age for first-time home buyers is early thirties…so people are definitely anticipating renting for awhile,” Gudell said, adding that, “now versus in the 1970s, we’re seeing people rent for longer post-graduation during their first job, rather than immediately buying a home in their late twenties.”
Since the oldest members of the Millennial generation are only 36, Gudell believes that they should be given more time, since there is less of an expectation to buy immediately out of college.
The current pressurized state of the Seattle housing market means that available homes are at a premium, according to Gudell. “Even for those who do want to buy a home, they’re having a hard time finding one. Most of the inventory in Seattle is down by roughly 30 percent from a year ago, and that hits all price points across the market: high-end homes and low-end homes are hard to come by…which is why people often will rent first before buying a home.” Given the dynamic and fluid nature of the Seattle market, renting is often a necessity rather than a preference. “Given how fast the Seattle market is moving, I can see that, especially here, you end up renting more often than not, especially if your chances of securing a home are relatively slim,” Gudell added.
Unfortunately for prospective buyers or renters eyeing Seattle as a destination to settle down, the current state of the housing market is likely to remain the status quo—at least for the foreseeable future, according to Gudell. “The only bad news is that I don’t foresee the Seattle market getting much more inventory next year…I think mortgage rates will probably rise. I don’t know how much better buying conditions will really be in 2018 for most Seattleites,” she said.
One overarching national trend that reflects the constrained inventory in Seattle is that current homeowners often opt to stay put for a significant period of time. The study found that the majority of homeowners, 46.9 million American households (86 percent) have no plans to sell within the next three years.
Seattle’s housing market is experiencing a period of sustained expansion, and zoning laws will eventually begin to evolve accordingly, thinks Gudell. “Seattle is a growing city, and the city is trying to keep up and build more,” she said, adding, “if you look at Seattle as a whole, roughly 60 percent of the city is zoned as a single-family home lot…[but] that changes as we become more dense and build more townhouses; we’ll be able to accommodate more people in this growing city.” As growth in the city’s main urban cores continue, people are increasingly viewing the further-removed suburbs as a more viable option because of better affordability and more inventory, according to Gudell.
When asked to provide some points of advice for those looking to confront the intimidatingly active Seattle market, Gudell had the following to say: “Don’t let anyone stress you in terms of the buying decision…Patience is important in a market like this…don’t overextend your budget; learn the market and see what’s actually doable [financially].” And while these guidelines might seem intuitive in the context of any long-term housing or rental market, nothing can be taken for granted in the current landscape, according to Gudell. “These things seem obvious, but given the environment that we’re in, things happen fast.”