Forget starter houses – millennials are buying luxury homes

Millennials in the U.S. were so slow to become homeowners that it was beginning to look like they’d rent forever. Now they’re a force in the market for new high-end houses.

Toll Brothers Inc., the largest U.S. luxury-home builder, said Tuesday that 23 percent of its sales this year were to customers with at least one buyer age 35 or younger. That was a surprise, given that the company’s average contract price in the three months through July was $837,300.

Buyers in their 20s and 30s have been slow to purchase for good reason. They’re marrying and having children later and face a tight existing-home market, where sellers routinely get multiple offers. But the delay has given some of them time to save for a down payment.

“We’ve been pleasantly surprised,” Fred Cooper, vice president of investor relations at Horsham, Pennsylvania-based Toll, said in an email. “These people, who may each have 10 years of work under their belts, can afford a first home that is more luxurious than what one thinks of as the typical starter home.”

Homeownership by young people is still low by historic standards. Buyers from 18 to 34 years old possess 11 percent of U.S. owner-occupied houses, according to an analysis of Census Bureau data by real estate website Trulia. When baby boomers were that age, they owned homes at almost twice that level.

Not Waiting

Toll recently introduced its lower-priced T Select brand, aimed at younger buyers. But millennials are mostly purchasing the company’s other homes, Chief Executive Officer Douglas Yearley said on a conference call with analysts Tuesday.

“We are committed to sell homes to the leading, more-affluent edge of the millennials because we’re not going to wait for them to buy their second or third move-up house, which in a decade, they will obviously be doing,” Yearley said.

Toll fell 2.6 percent to $37.27 Tuesday after releasing earnings for its fiscal third quarter. While the builder reported a 24 percent jump in contracts from a year earlier, it lowered the top end of its gross-margin forecast for the full fiscal year. Results will be hurt by 150 closings that will be pushed to next year because of a floor-joist recall, the company said.

Megan McGrath, an analyst at MKM Holdings LLC in Stamford, Connecticut, said Toll now is seeing only the oldest of the millennials among its buyers. Many more will follow, she said.

“Part of it is generational -- millennials didn’t feel the need to buy a starter home, and maybe couldn’t and they waited until they were in their 30s,” she said. “Maybe now they’re just skipping over the starter home and buying a higher-priced alternative.”

MPA

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market.

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome!