Millennial Series: A Wave of Millennials and The Avocado Toast Effect

By | July 6, 2017

Of late, the internet has been rife with examples of how millennials are ruining pretty much everything. From restaurants, soap, wine corks, and retail stores, to the 9-5 work week, you name it and millennials have been credited with ruining it. (For more on this phenomenon see: Here are all the things millennials have been accused of killing )

Most significantly, however, and probably most talked about are how millennials are depressing the housing market because we are waiting longer to form our own households and leave the proverbial nest (aka Mom and Dad’s basement). And while it has been discussed at length the reasons many millennials are delaying home ownership (see previous discussion) the topic is worth a revisit.

One of the most significant hindrances to home-ownership among millennials is lack of a down payment. While student debt is one of the main impediments millennials face in trying to save for a down payment, there are some including Suze Orman, and Australian millionaire and real estate developer, Tim Gurner, who believe something much more odious is to blame: Avocado Toast.

In a recent CNN article, (Millionaire to millennials: Lay off the avocado toast ), Tim Gurner evinced what we’ll call ‘The Avocado Toast Effect’, which in essence is the idea that millennials aren’t able to save for a down payment because they’re spending too much money on avocado toast rather than saving for a home. While this sounds ridiculous, it is important to realize that avocado toast is a stand-in for anything millennials choose to spend money on, whether it is eating out at farm-to-table restaurants, organic fair trade coffee, vinyl records, vintage clothing, concerts, or vacations. While the Avocado Toast Effect may hold a modicum of truth, it needn’t be cause for concern. Millennials are indeed entering the housing market…we are just doing so at a slower pace and waiting until later in life, unlike our predecessors.

According to Zillow, the average age of today’s first time home-buyer is 33, this is up considerably from 27, the average age at which baby boomers purchased their first homes. In addition to waiting until later in life to purchase a home, millennials are tending to take some time between moving out of Mom and Dad’s and buying a home of their own and using this time to experience apartment living, usually in a metropolitan area.

So what we observe then is the modern day millennial fledging the nest in favor of apartment living in metropolitan areas. The millennial searches for a habitat close to work, play, and plenty of avocado toast. As the millennial matures and begins to shed its skinny jeans, and RompHims, in favor of a more conservative and professional aesthetic the millennial begins to prepare for a lifestyle change. As this shift in lifestyle and maturity occurs the millennial begins searching for a new, permanent habitat…in the suburbs. At this time, the millennial generally seeks a mate, purchases a permanent residence, and settles down.

On the plus side, when millennials do (finally) enter the housing market, data shows they are tending to skip starter homes in favor of larger homes with higher prices. According to Zillow, millennial buyers are spending on average $217,000 for a home about 1800 sq. feet in size which is consistent with prices and sizes older generations are currently upgrading to. As the millennial cohort ages, we should see this trend continue and even pickup as more and more millennials enter the market. Because millennials have recently overtaken Baby Boomers as the largest population cohort this means good things for the housing market.

The graph below developed by Mike Fratantoni, the Chief Economist of the Mortgage Banker’s Association, illustrates millennial population projections by 5-year age groups. As the graph illustrates, millennial populations will peak at three different points in time 2020, 2025, and 2030.


As stated previously, the average age of the first time homebuyer is 33 years old. As such the years immediately preceding and immediately following 2025 should be of particular interest for realtors and mortgage lenders as millennials will likely make up the bulk of their buyers and borrowers in these years. While prime buying time for many millennials may still be a few years away, there are things lenders and realtors can do to prepare for the wave of millennial first time homebuyers that will eventually flood the market. In particular, it will be important for lenders and realtors to become familiar with the ways in which millennials do business and what they’re looking for. For more on this be sure to tune in next time!

In the meantime, for this shortened week, we should be mindful of the Employment report due out Friday, Trump’s attendance at the G20 summit, and the Fed’s release of the semi-annual monetary policy report tomorrow. While investors don’t seem to be looking to the G20 summit for any market moving activity, there is always the possibility that any news or tweets out of the G20 could cause some market movement. Tomorrow’s nonfarm payroll numbers on the other hand are more likely to cause some volatility should the report be significantly different than what is expected. Nonfarm payroll numbers are expected to bounce back to around 170,000 after slowing to 138,000 in May, with only a significant difference causing any market movement. As a result, the bulk of any volatility tomorrow will more likely be attributed to the semi-annual monetary policy report. The report, released ahead of the Fed’s semi-annual two-day appearance before congress next week could cause an initial knee-jerk reaction in stock and bond markets, hopefully though we won’t see much volatility so we can sit back, relax, and enjoy that avocado toast!

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