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A Home Buying Guide for Reluctant Millennials

Terry Story, Home Buying Guide

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams, about how overwhelming buying a home can feel for millennials. The two discussed some of the things that millennials need to know before buying a home.

Buying A Home As A Millennial

With the current state of the real estate marketplace being somewhat tricky to navigate, it’s even more difficult for millennials, some of the youngest homebuyers in the game. Terry said, “The biggest reason millennials feel so overwhelmed by the prospect of buying a house is simply the fact that they haven’t had the proper education.”

The thing millennials need to understand is that it doesn’t have to be that complicated. Get yourself connected to a good realtor. They will be able to put you in touch with a good lender. Or vice versa. If you start with a lender, you can see what financial resources you qualify for. Then the realtor can help you find a home in your price range.

One additional factor to keep in mind is the fact that 70% of millennials surveyed were familiar with the housing market crisis of 2008  and about half actually knew someone who lost their home. Steve commented, “That kind of leaves an indelible stamp on your brain. It takes a while to have new experiences to kind of remove those old feelings.”

Terry added, “It’s important for millennials to understand that we’re not in the midst of the same type of crisis and that interest rates are incredibly low right now.” That means that it really is a good time to buy, provided you educate yourself and stay within your means. Realtors are also seeing that millennials are getting a good amount of parental support when it comes to buying their first home. Sometimes it’s in the form of house hunting, but more and more, parents are helping their kids out financially.

Understanding Costs

The other major aspect of buying a house (especially versus renting) is what the house will actually cost. Remember, interest rates are low right now. “It’s cheaper to buy a home at a higher price with a lower interest rate; a 1% difference in interest rate equals a 10% difference in affordable home price,” Terry said. People tend to fixate on the dollar amount attached to a home price. But, for example, if you could afford a home that’s $400,000 and interest rates drop by 1%, you could ultimately buy a home valued at $440,000 for the same cost. Terry emphasized the point that “You have to look at the total cost to purchase, not just the price.”

“As interest rates come down, a sort of antigravity field is created around asset prices and prices go up. As interest rates rise, gravity is increased on asset prices and prices will come down,” Steve said. What does this mean? You need to think about the price of a home in terms of how long you’re going to live there. If the price of the home you buy comes down, will you have enough equity or will you be in the home long enough to wait out a cycle? Terry noted, “I typically tell people not to purchase a home unless they plan on living there at least five years.”

If you’d like to learn more about buying or selling a home, check out Keller Williams!

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

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Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry’s a 31-veteran with Keller Williams, located in Boca Raton, Florida. Welcome back to the show, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: So, a lot of millennials are getting to an age where they’re ready to buy a house, but they seem to be somewhat overwhelmed by the process.

Terry Story: Yeah. And there’s a lot of reasons for it, Steve. A lot of, really, it just comes down to education. They’re just not informed. And it’s all part of the adulting. They’ve got to go out and figure it out.

Steve Pomeranz: Okay, Boomer.

Terry Story: But it’s not really that hard. Millennials listening, all you really need to do is get yourself connected with a good realtor, who will put you in touch with a good lender, or vice versa, start with the lender. See what you qualify for. And get in touch with an agent. And then let them do the heavy lifting for you and guide you through the process.

Steve Pomeranz: I think one of the problems is that they came up in the age of the 2008 housing crisis.

Terry Story: That’s right.

Steve Pomeranz: And that creates kind of an indelible stamp on your brain. It takes a while to have new experiences to kind of remove those old feelings.

Terry Story: Sure.

Steve Pomeranz: But there’s some statistics here that 70% of millennials that were surveyed were familiar with the housing crisis. Among that group, half of them said they knew a family or their own family who had lost a home. About half said growing up during the crisis made them more nervous to purchase a home. And 70% said they view the housing market as fragile.

Terry Story: Yeah. It’s amazing. And all of that is true, especially during that timeframe. And there’s never been anything like that.

Steve Pomeranz: It’s a mental skew. I don’t know if that’s really a term, but it’s just because it makes up a large part of your experience at that age, it’s a formative age. I mean, I didn’t really start thinking about money until I was in my late 20s.

Terry Story: Right, right.

Steve Pomeranz: And become aware of more politics and things like that. It’s just kind of an aging thing.

Terry Story: And they should be purchasing. The interest rates are so incredibly low.

Steve Pomeranz: Well, this is it. Yeah. But they don’t feel that. They feel they’re priced out of the market.

Terry Story: Yeah. And there’s a lot of truth to that. But what I can say about that is if you get together with a mortgage person, you might find a way that it can become affordable. And to be real blunt about it, there’s a lot of parental support.

Steve Pomeranz: Okay. So how much do you see parents getting involved in the home-buying process with millennials?

Terry Story: What I see mostly, it’s not that they’re going around with them looking at the property per se because that can be a disaster. What I see more so than anything else, they might be doing a gift letter, a gift loan.

Steve Pomeranz: Here’s help for a down payment.

Terry Story: Right, right. And that’s not totally unusual. And whether they’re repaying it back or not, that’s between the two of them. But that’s not unusual because it’s expensive.

Steve Pomeranz: Why is it a disaster when the parents come along?

Terry Story: I would say if you’re going to be purchasing a property, anyone who’s going to be part of the buying decision needs to be there from the very get-go. So what happens is you’re taking a couple along, and you’ve shown them 35 million homes, every single property that’s for sale. And they’ve narrowed it down to two. And then the parents come in, and they’re like, “Oh, we don’t like these. You need to keep looking.”

Steve Pomeranz: Yeah. Or they become somewhat of a quasi-real estate expert because they’ve owned a couple of homes.

Terry Story: Correct. Correct.

Steve Pomeranz: Got you.

Terry Story: And so, as agents, a lot of times we cringe. But then some other times, some of the parents are helpful and very encouraging and understand the value of buying your first home, especially with interest rates so low.

Steve Pomeranz: I know.

Terry Story: It’s cheaper to buy a home at a higher price at a lower interest rate than it is the other way around. And we talked about this. 1% difference is 10% difference.

Steve Pomeranz: In the home price.

Terry Story: In the home price.

Steve Pomeranz: Yeah. Well, the idea is people fixate on a price of the property.

Terry Story: Yep. You’re right.

Steve Pomeranz: It’s $400,000 and that’s a lot. But if interest rates in the meantime drop 1%, you could buy a $440,000 house and pay the same amount.

Terry Story: Right. Really, you have to look at the cost to purchase, not the price.

Steve Pomeranz: The price is fungible because it’s related to the cost of maintaining. That’s why in the United States, really and around the world, companies are buying other companies at very high prices. The stock market companies are selling at high multiples to their earnings. Why? Because interest rates are so low that they can borrow so cheaply. And the cost of paying more on terms of having what you have to pay, what a corporation has to pay to borrow is lower, so they can pay more.

Terry Story: So they can pay more.

Steve Pomeranz: And that drives prices up. So as interest rates come down, it kind of creates an antigravity field around asset prices and prices go up. Now the reverse is also true. I’m just giving a little lesson here. As interest rates rise, it acts to increase the gravity on asset prices, and asset prices will come down.

Terry Story: And that is something, as I say this, it’s also important to take into account if the price of the home that you’re purchasing does come down, do you have enough equity? Are you going to be in that home long enough to wait out a cycle? So these are things you just have to take into consideration. I tell people you really shouldn’t purchase a home unless you’re planning to stay five years.

Steve Pomeranz: Oh, at least.

Terry Story: That’s my benchmark.

Steve Pomeranz: It’s a long-term investment.

Terry Story: It is a long-term investment. So if you don’t have that kind of vision-

Steve Pomeranz: Yeah. Then don’t buy.

Terry Story: Then don’t buy.

Steve Pomeranz: It’s the same thing for investing in the stock market. I always ask, “Well, when do you think you’ll want access to this money?” I mean, if it’s less than three years, it’s not going in the stock market. Even five years makes me kind of nervous. I want to be able to go through a complete cycle.

Terry Story: Exactly.

Steve Pomeranz: Because nobody knows what the market’s going to do. So really, 10 years, 20 years, a lifetime is really the answer to that. The holding period is really forever.

Terry Story: Forever.

Steve Pomeranz: In that sense. So that’s something that is very important. So if you had a large mortgage, a little bit of equity and the price of the property goes down, the price could be worth less than the outstanding mortgage. That’s called being upside down.

Terry Story: Right. Correct.

Steve Pomeranz: And it only matters if you can’t pay the-

Terry Story: If you’re looking to sell.

Steve Pomeranz: Well, and you can’t pay the mortgage.

Terry Story: You can’t make the payment, sure.

Steve Pomeranz: Right?

Terry Story: Right.

Steve Pomeranz: Other than that, it doesn’t really matter, except it doesn’t feel good.

Terry Story: And then the other thing you have to think is: If you don’t own it, and you want to live in that home, what is it costing you to rent it? Because we all have to have a roof over our heads. Right?

Steve Pomeranz: Yes, right.

Terry Story: You’re either buying it or you’re renting it and somebody else is making the payments.

Steve Pomeranz: I’m not sure I understand your point.

Terry Story: Well, the point being, if you like this house and it’s $500,000, you’re going to buy it for $500,000 and your payments are $2500. Yet same house, you could rent it from the landlord, and it’s going to cost you $3500 a month.

Steve Pomeranz: Yeah, yeah. Okay. What you’re forgetting is the fact that, that $2500 is really, let’s say, it includes taxes and insurance, but it’s just the start.

Terry Story: It is. Yes.

Steve Pomeranz: It’s just the start, new roof, new everything.

Terry Story: Yeah. There’s maintenance.

Steve Pomeranz: Yeah, there’s a lot of maintenance. My guest, as always, is Terry Story. We get the real story here from Terry Story. Terry is a 31-year veteran with Keller Williams, located in Boca Raton, and can be found at terrystory.com. Thanks, Terry.

Terry Story: Thanks for having me, Steve.