What was once a luxury is becoming normalcy for a certain youthful subset of the population. Recent reports suggest that millennials are purchasing vacation homes before they even purchase their starter homes — a perplexing mystery given the standard millennial antipathy towards homeownership. So, why are vacation homes becoming so popular?
The truth is complex, and tells an interesting story about our current economic situation and our modern social needs.
The Relationship Between Millennials and Homeownership is Complex
It’s easy to assume that millennials aren’t purchasing homes because they can’t afford them, and that’s certainly part of the problem. In many areas, home costs have risen far past average salaries. But there’s another reason millennials aren’t buying homes: they don’t want them.
Millennials move around more frequently than other generations, so it doesn’t make sense for them to buy a house in a specific place. Further, millennials are less “handy” than prior generations, which means every home-related issue is a disaster; most of them don’t want to invest in the upkeep. Renting is a better solution.
Thus, though it may initially seem contradictory, a vacation home can allow millennials to invest in real estate without also investing in the perceived downsides associated with owning a primary home.
The Advantages of a “Vacation Home”
If millennials aren’t making money, and they don’t want to invest in upkeep, why are they buying vacation homes? What is it that makes vacation homes superior in their eyes?
First, vacation homes don’t need the same type of maintenance that a primary home does. Primary homes experience more wear-and-tear, and they’re critical. If a heater goes out in a vacation home, a homeowner might not even notice until later. Thus, vacation homes can be perceived as lower risk from a maintenance and upkeep standpoint.
Further, vacation homes don’t require that homeowners live in any place in particular. They are able to freely travel wherever they wish, while still establishing a “home base” in an area that they like to vacation in. So, vacation homes don’t have the problems that a “real home” might, because they still allow a millennial homeowner to live as they desire.
But, the real answer comes from the type of millennials who can even afford to purchase a home to begin with.
Where Do the Millennial Home Buyers Actually Live?
Millennial vacation home buyers are largely in areas where they can’t purchase property.
They tend to be in high income areas such as San Francisco and New York… areas where it’s unfeasible to purchase a home to begin with. For these millennial borrowers, purchasing a vacation home is actually less expensive than purchasing a primary home.
And that means that millennial home buyers who are earning a decent wage are still priced out of the market; a vacation home in a place that they don’t even work may be the best solution available to them.
The Consequences of Vacation First Purchasing
While at first it may seem as though millennials are being irresponsible with their money, the social trend this highlights is actually even more concerning. The truth is that wages that are high enough to afford homes are all in areas where people can’t afford homes; consequently, people are being forced out of the markets in which they live.
This isn’t unique to America. Canada and Australia have also seen sharp increases in property rates, which have ultimately been leading to a generation for which homeownership seems well outside their grasp. And while vacation homes may be a temporary solution, they’re little more than a salve. They get people into a real estate market, but usually a more depressed market than the one that they currently live in.
Is it a good idea to buy a vacation home? It might still be. For millennials who can’t otherwise purchase a home, it does mean that they can get into the market, and start appreciating value in their property. If they frequently vacation elsewhere, it may save on some travel and lodging costs, and it does improve their overall portfolio and credit outlook.
But what it doesn’t do is solve the larger problem, which is that millennials aren’t earning enough to purchase property — and that’s a problem that has to be addressed either through greater earning potential or more affordable homes.
